ACCC: East coast gas prices too high and future uncertain

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The 2020 supply demand outlook in the east coast gas market has improved and LNG netback prices have decreased, but domestic prices remain high and there is significant uncertainty about future supplies, according to the Gas Inquiry 2017-25 Interim Report released by the ACCC.

The report found that the supply outlook for 2020 has improved slightly since July 2019 but beyond 2020 there is significant uncertainty about whether future demand can be met.

On the ACCC’s findings, a joint media release from Treasurer Josh Frydenberg, Minister for Energy and Emissions Reduction Angus Taylor and Minister for Resources Keith Pitt, titled ‘ACCC points to improved gas supply in 2020’, said the ACCC’s report was good news.

“The Australian Competition and Consumer Commission (ACCC) reported an improvement in the gas supply outlook across the East Coast market in 2020, with a supply shortfall unlikely in the short-term,” it read.

Importantly, between June 30, 2017 and June 30, 2019 Queensland LNG reserves were written down by more than 4,400 PJ.

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“Southern states risk facing a shortfall in the medium term unless there is more exploration and development in the south, or new infrastructure to bring more supply to southern states,” ACCC Chair Rod Sims said.

“We continue to urge state and territory governments to assess individual gas development applications on a case-by-case basis. We also suggest they actively manage tenements to prevent ‘warehousing’ of gas, and that they coordinate the development of pipeline and storage infrastructure to avoid unnecessary duplication.”

While LNG netback prices have been falling since May 2019, with forward LNG netback prices for 2020 well below netback prices seen in recent years, prices offered in the East Coast Gas Market have remained mostly steady within a range of $9-$12/GJ.

“The recent significant divergence between the netback prices and the prices offered is a concern for the ACCC and in 2020 we intend to now delve much deeper into the reasons why this is occurring,” Mr Sims said.

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“Indeed, average netback prices expected for 2020 have been under $7/GJ since November 2019, which is well below prices being offered to domestic buyers.

“We have been watching prices closely, and have observed instances where prices offered have included a fixed price component, on top of an LNG spot price linked component.”

The Energy Users Association of Australia (EUAA) says the ACCC’s report confirms the gas crisis is still here.

“While LNG netback prices have fallen, domestic contract prices remain high,” said EUAA Chief Executive Officer, Mr Andrew Richards.

“In our view, uncertainty about future domestic supply and competition issues are still major concerns for gas users. This will require significant and sustained attention by governments and the gas industry if we are to avoid demand destruction and thousands of lost jobs.”