Victoria Should Produce More Gas: Aus E&P Group
The reason why gas prices in Victoria are the highest in Australia is because the state has clamped down on production, upstream lobby group Australian Petroleum Production and Exploration Association (Appea) said February 5.
A report published the same day by the McKell Institute found: "The escalating price of gas has driven power prices higher, and it has become increasingly clear to most observers that the shortfall of gas within Australia’s energy market can and should be avoided to offset higher power prices.
"The nature of price-setting in the wholesale gas market is such that few analysts can predict with certainty, the future course of gas prices. However, the engineered shortfalls in gas supply as a result of poor government policy and the commercial tactics of gas exporters in Australia in 2017 and 2018 have caused uncertainty, and have contributed to an overall higher price of wholesale gas. The Australian Competition and Consumer Commission (ACCC) noted in its September 2017 Gas Inquiry interim report that ‘prices being offered are considerably higher than past levels, generally ranging from A$10– A$16/gigajoule over the first half of 2017’ in wholesale markets," it said.
A$10– A$16/gigajoule corresponds to A$10.53-16.85/mn Btu, or US$8.34-$13.34/mn Btu.
"Households in New South Wales, Queensland and Victoria are already paying approximately A$151 ($120), $175, and $134 more per year on their household electricity bills respectively as a result of the currently inflated wholesale gas price." The report may be read here.
The Australian Workers’ Union (AWU) has been urging a gas reservation policy but it should instead be calling for the immediate removal of state government-imposed bans on natural gas development, said Appea CEO Malcolm Roberts. He said the gas reservation policy would discourage investment in new domestic gas supply, drive up energy costs for businesses and families and, ultimately, cost union members their jobs.
“The McKell Institute report released today ignores the latest advice to the COAG Energy Council and the advice of the ACCC in its subsequent December 2017 update which shows wholesale gas prices falling in all east coast states last year,” Roberts said. The Council of Australian Governments (COAG) is the supreme intergovernmental forum in Australia.
“The AWU is also ignoring the fact that gas producers, under an agreement reached with the federal government, have significantly increased supply to the domestic market. This was done without tearing up existing export contracts as advocated by the AWU, a move that would seriously undermine Australia’s investment reputation and threaten future investment in new supply.
“If the AWU genuinely cares about gas prices and jobs, it should join with industry in calling for the immediate removal of all state-based bans and restrictions on onshore gas development. It is no coincidence that Victoria, which has banned all onshore gas development, now has the most expensive wholesale gas in the market. The ACCC warned last year that southern states would continue to pay a premium for relying on Queensland gas – up to $4GJ in additional transportation costs.
“The obvious solution is for Victoria and New South Wales to develop their own substantial gas resources. More supply – and more suppliers – will put downward pressure on prices,” he said.
Roberts also said the McKell Institute report was wrong to assert Australia had the world’s highest gas prices with analysis by the International Gas Union showing average wholesale domestic gas prices were below the Asia-Pacific region average.