More gas the solution to higher prices

A major Australian Competition and Consumer Commission (ACCC) investigation has confirmed moratoria and over-regulation of unconventional gas fields are exacerbating uncertainty and increasing prices.

The ACCC East Coast Gas Inquiry report, released today, identified increased gas exports from Queensland, volatile world oil prices, and government regulation as the major disruptive forces in Australia’s east coast gas market.

Australian Energy Council chief executive Matthew Warren said the report confirms what the energy industry has known for a long time.

“This report reinforces that Australian governments must reconsider moratoria and other regulatory constraints on unconventional gas developments in NSW, Victoria and Tasmania,” he said.

“We are now one of the world’s biggest gas suppliers, both to domestic customers and global markets. What should be an economic success story is being compromised by political decisions that do not reflect the significant economic benefits of new gas developments.”

Mr Warren welcomed the ACCC recommendation that state governments assess individual gas supply projects on a case-by-case basis, rather than imposing blanket measures such as moratoria on development.

“An increased supply of gas from an increased range of suppliers would benefit residential and industrial customers, increase competition and enable buyers of gas to negotiate better terms and conditions,” Mr Warren said.

ACCC shows policy bans a threat to gas consumers

Energy Networks Association CEO John Bradley said the ACCC report highlighted the effect of policy restrictions in Victoria, NSW and Tasmania and under consideration in the Northern Territory.

“Gas customers in New South Wales, Victoria and Tasmania will benefit from moves to remove arbitrary barriers to the development of new supply,” Mr Bradley said.

“The ACCC is right to call for evidence based assessments on a project by project basis to retain community confidence.”

Mr Bradley said that state governments should consider the possibility of customers paying higher bills due to constraints on new supplies.

“The ACCC notes that a $2 per gigajoule increase in the wholesale price could lead to increases to residential customers of 5 per cent in New South Wales and 11% in Victoria,” he said.

“Recent ENA analysis showed falling network costs in many jurisdictions could see residential gas bills fall by around 5 per cent on average in the next five years. In fact, we expect the network component of the typical bill to decrease from 35 per cent to 27 per cent by 2019/20.

“However, governments must act quickly to ensure arbitrary policy bans are not causing unnecessary increases in wholesale costs.”

ACCC report confirms urgent need to remove regulatory restrictions on gas supply

Australian Petroleum Production and Exploration Association (APPEA) chief executive Malcolm Roberts said the report highlights that the greatest risk to the market is regulatory failure, not market failure.

“The ACCC confirms that removing unnecessary government restrictions on exploration and development is the most effective way to boost supply, enhance competition and put downward pressure on prices,” he said.

“Australia has ample gas resources to supply domestic and export markets – if industry is allowed to develop these resources. But, at a time of unprecedented demand, government policies risk creating an artificial shortage of gas and higher prices.

“The effects of an unnecessarily tight market are already being felt, especially in industry where gas is both a source of energy and an irreplaceable feedstock for manufacturing products such as glass and packaging.”

The risk is most pronounced in Victoria, according to APPEA, with Mr Roberts adding almost 40 per cent of the gas consumed by industry in Victoria is used as a feedstock.

“Victoria also has the highest use of gas by households – 77 per cent of households use gas,” he said.

“The ACCC was asked to conduct this review because it has the power to obtain confidential, commercial information. Using this power, the Commission has amassed the most detailed and complete data on the market. With this data, the Commission has been able to test all the claims made about the market.

“Contrary to claims by some parties, the ACCC has found – as the Productivity Commission found in 2015 – that there is no evidence of misuse of market power or other breaches of competition law.

“The industry welcomes the Commission’s findings and trusts that the public debate can now move on from discredited arguments to the real issues. In particular, we are looking to the COAG Energy Council to make regulatory reform an urgent priority. Governments must remove regulatory barriers to bring more supply and more suppliers into the market.”