Oz East Coast Gas Prices 'too High'

The tight gas supply situation on Australia’s east coast has been improved following the region’s LNG producers shoring up local supplies and prices have come down. But they are still higher than they would in a well-functioning and competitive market, Australia’s competition watchdog said December 13, and restrictions on upstream activities make it worse than it need be.

The comments come in the Australian Competition and Consumer Commission’s second interim report as part of its inquiry into Australia’s wholesale gas supply arrangements. In the September report, it found that there was likely to be a substantial gas supply shortfall in 2018. Threats by the country’s prime minister, Malcolm Turnbull, to restrict LNG exports led to the Queensland-based LNG producers stepping up domestic supply and while this has quelled the shortage concerns, problems still remain, the new report says.

Since September, the LNG producers have contracted 42 petajoules of gas under long-term supply agreements to domestic buyers for supply in 2018 – cutting their export volumes to make this happen, the ACCC said.

Prices offered to large commercial and industrial (C&I) users have come down from a peak of A$16/gigajoule in early 2017 to within a range of A$8-$12/GJ since July, it said.

But the picture for smaller C&I users remains bleak: they generally face higher prices than larger users with few competing offers. Some smaller C&I users have told the ACCC that they still only have one retailer interested in supplying them, and others claim they continue to have no gas available, it said.

“We are very concerned that retailers as a whole appear to be placing less importance on commercial and industrial gas users,” ACCC chairman Rod Sims said.

“The ACCC believes that recently agreed 2018 prices are at the upper end of, or above, the prices that would be likely in a well-functioning and competitive market. We will continue to closely scrutinise pricing across the entire market, including the behaviour by retailers,” he said.

The watchdog announced that it is considering developing an LNG netback price series at Wallumbilla in Queensland to enhance transparency of gas prices in the east coast market. It’s kicking off a consultation process about whether a price series should be developed.

Meanwhile, despite there now being a lower likelihood of a supply shortfall in 2018 across the east coast market overall, the southern states are still expected to continue using more gas than they produce – meaning that gas produced in Queensland will need to be sent down to meet the needs of gas users in those states, the report said.

“The gas shortfall in the southern states can add at least A$2/GJ and possibly up to A$4/GJ to the prices paid by gas consumers in these states. The various restrictions to onshore gas exploration do have consequences,” Simms said.

Further, the ACCC has found that some suppliers may be finding it difficult to obtain access on the key pipelines used to send gas south. In some cases, the key pipelines are close to being fully contracted in 2018, with most of the capacity held by the two largest retailers, it said.