Australian Competition Watchdog Recommends Greater Regulation of Gas Pipelines
New gas supplies, further regulation of gas transmission pipelines and consistent flow of information can alleviate gas supply shortage in the east coast markets of Australia, Australian Competition and Consumer Commission (ACCC) has recommended.
The competition watchdog also said that some entities have abused their monopoly to charge higher prices.
These findings were part of ACCC report on the competitiveness of wholesale gas prices in eastern and southern Australia which was released by the federal government on Friday.
On the occasion of the launch of the report, ACCC Chairman Rod Sims said changes in the east coast gas market over the last four years with the development of LNG facilities in Queensland have created winners and losers. There is uncertainty about future supply outlook and some suppliers have taken advantage of this supply uncertainty and potential shortfalls to increase prices and implement more restrictive non-price terms and conditions, he said.
“While the pipeline sector is responding to the changing market dynamics and offering new services, pricing based on significant pipeline market power is prevalent. The regime regulating gas pipelines is not fit for purpose and pipeline pricing is largely unconstrained by either the threat of regulation or effective competition,” Sims said. “Pipeline pricing exacerbates the effect of supply tightness on wholesale gas prices. There are currently very few constraints on monopoly pricing by pipeline operators.”
The report found a A$2 per gigajoule increase in the wholesale price of gas could increase residential bills by 5 per cent in New South Wales and 11 per cent in Victoria.
Triple whammy
Sims said the triple whammy of the introduction of LNG and with it exposure to international gas pricing, a fall in oil prices leading to a downturn in exploration and new development, and regulatory uncertainty and exploration moratoria, has created an increasingly complex environment for many gas market participants.
“The future supply outlook is uncertain. Meeting future domestic and LNG demand will require extensive development of undeveloped gas reserves and resources. Sufficient gas is currently forecast to be produced in the east coast gas market to meet domestic demand and existing LNG contract commitments until at least 2025, but there is uncertainty over the timing of some developments, particularly due to low oil prices,” he said.
More transparency
In addition to supply tightness and effects of pipeline pricing, opacity and illiquidity in east coast gas market are adding to the woes.
“Confidential bilateral negotiations remain the norm for both gas supply and transportation contracts. The lack of consistent, publicly available data on the sector is an impediment to participants, investors, and policy makers,” Sims said.