ACCC sets bar on ground for gas industry to jump over

As Australia’s competition regulator and national consumer law champion, it beggars belief that the ACCC (Australian Competition and Consumer Commission) continues to pander to the gas cartel.

While it is true that there have been some falls in prices following on from the Prime Minister’s intervention in the Australian gas market, any improvement is illusory and fails to take account of the current global gas glut and falling contract prices globally.

Australian consumers continue to pay far too much for gas produced in Australia.

The ACCC Gas Inquiry 2017-2020 interim report contends that supply is better in the domestic market following the gas industry’s offer to divert some gas spot sales into the domestic market.

The market however remains “starved” of supply by the cartel of gas producers. They control the gas industry on the east coast to keep prices high.  So, while the market has gas, it does not have a meaningful surplus of gas.

The east coast is awash with gas and there is no reason that we should not be paying amongst the cheapest prices in the world.

Macquarie Bank recently produced an appropriately titled report “Global LNG – The power balance has shifted”.  This comprehensive review of the global gas industry found that:

“We see global oversupply from operating and under construction projects lasting until 2022, but including advanced projects, this extends until 2027.  Additionally, two factors could shift oversupply out further, export plants running above nameplate and the rise of renewables.”

Due to an international oversupply of gas, it has become a buyers’ market. The shift in power from domestic producers to LNG customers globally means contracts are coming under extreme downward price pressure.

Macquarie note that existing contracts have their pricing periodically reviewed.  Currently all these reviews have been in favour of the gas buyers in the global market and have seen falls of around 25% in contracted terms

Japanese customers pay amongst the highest prices in the world for their gas. They are currently paying approximately $A8.90/GJ for their contract gas under renegotiated pricing arrangements.

Australian customers are currently paying around $8-12/GJ according to the ACCC.  We should be paying substantially less than the Japanese given the gas must be liquefied (an expensive energy intensive process) and shipped all the way to Japan.

Once we start getting into the detail of the report, the ACCC’s gas industry supplied view looks even more absurd.  The ACCC claim that in the southern states we should be paying more for our gas than Queenslanders.

The ACCC says in Queensland we should pay $5.87-7.85/GJ in 2018 while in Melbourne we should pay some $2.45/GJ more accounting for the cost of transporting the gas from Wallumbilla in Queensland.

It claims that the Bass Strait is in decline and gas must come from Queensland to supply the southern states.

This quite simply flies in the face of reality.  On the very day that the ACCC released its report the Bass Strait fields are supplying 100% of the needs of Tasmania, Victoria and NSW, part of South Australia’s demand (the balance coming form the SA gas fields at Moomba) and exporting gas through to Gladstone. Melbourne and Sydney consumers have no need to be paying more than their Queensland counterparts.

The ACCC has clearly stated that one solution to the price crisis is to produce more gas by opening up coal seam gas fields in NSW and onshore gas fields in Victoria.

Politically, this is impossible in Victoria given the onshore gas ban that exists. In NSW it is problematic due to the unprecedented public opposition to the one live project, Santos’ Narrabri gas project.

This ACCC solution also flies in the face of current global gas economics.  Onshore gas has proven to be very expensive gas in Australia.

We live in a low cost gas world.  Producing high cost onshore coal seam gas is no way to bring about a fall in the price of gas.  The ACCC appears blind to what is occurring in global gas markets and is dutifully parroting lines from the gas industry.

It is well past time that the ACCC and Australian governments at all levels took on the gas cartel that is forcing up domestic gas prices to globally uncompetitive levels.  The high gas prices are also feeding through to high electricity prices.

Australia is blessed with abundant energy sources and prices should be amongst the cheapest in the world.  That we pay more than our export customers is testament to the fact that energy policy has totally failed.

The ACCC need to stop siding with an industry that has long failed the domestic gas market.  The gas cartel must be dealt with confidently and with the interest of families and businesses front of mind.

Bruce Robertson is an analyst with IEEFA.