ACCC: Gas market improves, but more needed

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While conditions in the east coast gas market have eased considerably since the extremes reported in 2017, more gas is required to keep prices down, according to the Australian Competition and Consumer Commission (ACCC).

The ACCC’s July 2018 Gas Inquiry Interim Report found there will likely be sufficient gas in 2019 to meet demand, based on current projections for the supply-demand balance.

Since the ACCC’s September 2017 report, conditions in the east coast gas market have improved, with a significant reduction in the AEMO’s forecast demand for gas powered generation in 2019 and an increase in forecast gas production in the southern states.

Prices offered for gas supply contracts have dropped from the peak of over $20/GJ in early 2017 and have remained in the high-$8 to $11 range.

While there will likely be sufficient gas in 2019, prices remain two to three times higher than historical levels, ACCC chair Rod Sims said.

“The lower forecast demand and increased southern production in 2019 is unlikely to be sufficient to lower gas prices,” he said.

“While gas market conditions have improved, these market conditions can change and the reality is that more gas is required to lower prices to users.

“To improve market conditions, the east coast gas market requires a greater level and diversity of supply, a more efficient transportation network, and greater transparency.”

Mr Sims said the ACCC continues to urge state governments to adopt policies that consider and manage risks of individual gas developments rather than implementing blanket moratoria and regulatory restrictions.

“To lower prices in the southern states, lower-cost gas must be produced in the southern states,” Mr Sims said.

“Gas production costs are increasing and gas prices in the east coast market are now shaped by international LNG prices, meaning that domestic prices are unlikely to return to historic levels.

“Forecasts for LNG prices in Asian spot markets are trending up at the moment and there is a risk domestic gas price offers could increase to reflect these expectations.

“The ACCC is seeking to improve market transparency and ensure commercial and industrial gas users are making decisions based on accurate and reliable market information.”

The ACCC is working to improve transparency in the east coast gas market by publishing prices offered and agreed for gas supply and the prices for transportation services.

To provide gas users with better information about export parity prices, the ACCC will also soon begin publishing an LNG netback prices series.

The ACCC’s next interim report is scheduled to be provided to the Treasurer in December.