ACCC confirms lower gas prices and more supply for domestic market

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Australia’s gas supply outlook will remain steady through next year despite the ongoing impact of COVID-19 according to the latest Australian Competition and Consumer Commission (ACCC) Gas Inquiry interim report.

The report also confirms that gas prices have continued to fall, which is expected to provide some relief to local gas users.

The majority of offers by producers for supply in 2020 and into 2021 fell to between $8–$10/GJ. There is also evidence of further price falls since February, with prices being offered in Queensland falling below $7/GJ.

The COVID-19 pandemic has had little impact overall on East Coast gas production or consumption so far in 2020, compared to the same period last year. 

Sufficient supply has also been confirmed to meet forecast domestic and export demand in 2021.

This is enhanced by LNG producers being well placed to alleviate any potential supply pressures. It is expected 84 petajoules (PJ) of excess gas in 2021 could be directed to the domestic market.

Despite this good news, the Government is taking the ACCC’s concerns seriously in regards to the widening divergence between domestic price offers and the LNG netback price.

There are also reports that some LNG spot cargoes have been sold at well below the prices being offered to the domestic market.

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Treasurer Josh Frydenberg said The Morrison Government welcomes the latest report from the ACCC into the east coast gas market.

“The impacts of the COVID-19 pandemic are being felt across the economy which is why it is important that the Government and the ACCC continue to monitor developments in Australia’s gas markets to ensure Australia’s consumers and businesses benefit from competition.”

Minister for Energy and Emissions Reduction Angus Taylor said the Government expects gas producers to reflect internationally competitive export prices for Australian gas users.

“Australian gas must be working to benefit all Australians. It is essential that local gas users see the price reductions locally that are available on the LNG export market. We expect these price reductions to be passed on fairly,” Minister Taylor said.

“We support the ACCC issuing a compulsory request to seek more supplier pricing data so that we can better understand this pricing difference.”

Beyond 2021, however, the supply outlook is expected to tighten, with the ongoing impact of COVID-19 casting uncertainty over the longer-term outlook.

“Australia’s competitive advantage has always been based on cheap energy, particularly for the manufacturing sector” Minister Taylor said.

“Gas will be central to our ongoing economic recovery. A robust and competitive gas industry will allow both gas producers and users to thrive, with lower prices benefiting all Australians.”

The ACCC also recommends that the Government’s landmark Heads of Agreement with Queensland LNG producers be extended to beyond 2020 to improve supply certainty. The ACCC recommends that the Government work with industry to include a reference the netback price in the Agreement to make commitments that support domestic gas users.

Minister for Resources, Water and Northern Australia Keith Pitt said despite the ongoing impact of COVID-19, the gas market had continued to perform comparatively well.

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“The COVID-19 pandemic is impacting all sectors of our economy, but our gas industry continues to show resilience under pressure,” Minister Pitt said.

“There will be challenges in the future, particularly regarding uncertainty over our mid- to long-term supply outlook, contributed to by bans on gas exploration.

“The Government will continue to call on states and territories to remove blanket bans and moratoria on conventional and unconventional gas exploration.”

In 2017, the Government entered into a Heads of Agreement with east coast LNG exporters, which has been successful in committing big LNG producers to make more gas available to domestic users.

The Energy Users Association of Australia (EUAA) said the report showed there is more work to do on gas market reform.

“The latest Australian Competition and Consumer Commission (ACCC) Gas Inquiry Interim Report once again details divergence between LNG netback pricing and domestic gas price offers, and confirms more work is needed on gas market reform,” the EUAA said in a statement.

“The [EUAA] shares concerns expressed by the Federal Government and ACCC that domestic gas prices are too high and said the issue demonstrates that Australia has a serious competition problem when it comes to our domestic gas market.”

“Much of Australia’s manufacturing and food processing industries rely on affordable gas to provide the products we all rely on every day,” EUAA CEO Andrew Richards said.