High gas prices remains critical issue for east coast

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The Australian Competition and Consumer Commission (ACCC) has released the latest Gas Market Inquiry 2017–2020 report which states the current actions undertaken by the oil and gas industry will ensure the domestic gas supply until 2023, but high gas prices remain critical issue.

The report shows that most commercial and industrial Australian gas users will pay more than $9/GJ for gas in 2019, and some more than $11/GJ.

ACCC Chair, Rod Sims, said the fact wholesale gas prices remain so high means many Australian manufacturers are struggling to compete internationally.

“Commercial and industrial gas users have been telling us for some time that at those gas prices, their operations are not sustainable in the medium to longer term,” Mr Sims said.

“Businesses that rely heavily on gas are increasingly likely to relocate from the east coast or wind up their operations.”

Mr Sims pointed to the recent announcement by Dow Chemical that it would close its Melbourne manufacturing plant due, in part, to high gas prices. It came after RemaPak, a Sydney-based producer of polystyrene coffee cups, and Claypave, a Queensland-based brick and paving manufacturer, entered administration citing rising gas costs as an important contributing factor.

“Many other manufacturers are close to making critical decisions on their future operations. If wholesale gas prices do not soften, it is just a matter of time before they follow Dow, RemaPak and Claypave,” Mr Sims said.

The ACCC’s report notes that, after increasing over the course of 2018, expected LNG netback prices have fallen significantly over the past six months.

“We expect that those same suppliers have revised their prices down this year to reflect these latest expectations as quickly as they escalated them last year,” Mr Sims said.

“So far we are not seeing this.”

The interim report notes the Australian Energy Market Operator’s launch in March of a capacity-trading platform to allow unused pipeline capacity to be traded or acquired through auctions.

Initial data obtained by the ACCC suggests some market participants are making use of this new auction platform and transporting material quantities of gas from Queensland to New South Wales and Victoria.

However, Mr Sims emphasised that the level of future domestic prices in the southern states would depend on supply in the southern states.

“I urge producers to carry out the investment in gas production they planned,” Mr Sims said.

“Also, as I have done for some time now, I urge state governments to play their role in providing access to gas resources by adopting policies that consider and manage the risks of individual gas development projects, rather than implementing blanket moratoria and regulatory restrictions.”

APPEA Chief Executive, Andrew McConville, said the ACCC report showed the industry has increased substantially the flow of gas to the east coast domestic market and this will continue into the future.

“Following announcements in 2017 and 2018, there have been a significant number of new gas supply agreements in 2019 providing gas to domestic customers.

“The oil and gas industry announced billions of dollars in new investment in 2018 and beyond, to bring more gas into the market, supporting both domestic gas consumption and the gas export projects that are underpinning much of Australia’s economic growth.”

In the past two and a half years, there have been significant announcements from Arrow Energy, Shell Australia, Senex, Cooper Energy, Strike Energy, GLNG, Australia Pacific LNG, Origin Energy and Santos to bring on new supply in various parts of eastern Australia.

“The report also restated the ACCC’s concern that customers in New South Wales and Victoria will continue to pay more for gas because of state government restrictions on developing local gas resources. Importing gas from Queensland can add $2 to $4/GJ to the price paid by consumers in the southern states,” Mr McConville said.

“The real answer to getting gas prices down is to support safe and responsible development of resources.

“Working together to make this happen should be the focus of government and industry — to support all Australian businesses that rely on sustainable gas supply.”

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