Queensland gas contracts drying up

Queensland’s long-term supply of gas for local users is drying up as coal seam gas reserves switch to LNG projects, a new report states.

The Carbon Market Economics (CME) report, commissioned by the Energy Users Association of Australia (EUAA) and released in March, examines the impact the expected development of Liquefied Natural Gas (LNG) will have on Queensland gas users.

Launching the report at EUAA’s Queensland Energy Forum in Brisbane, CME director, Bruce Mountain said sellers are no longer interested in long-term contracts (greater than five years) for the domestic market.

“Whereas before there was a number of competing sellers keen to sell forward to monetise their gas and get an income stream to raise capital to expand their exploration, the investment of a number of international LNG players and businesses is now very well funded and no longer have a need or a desire to sell forward,” Mr Mount said.

“(With) the change in desire to sell forward to raise income, gas prices themselves and future gas has become somewhat uncertain.”

According to the report, the inability of Queensland’s gas users to access gas on reasonable terms and with reasonable future price certainty could delay or cancel investments.

The concentration of the supply side will also be a significant factor affecting service and prices in the market.

“We think it is imperative that the ACCC not authorise joint selling arrangements in Queensland and any prospective mergers should be rigorously scrutinised by them in terms of their anti-competitive impacts,” the report states.

The report is also critical of the ‘netback pricing’ framework, which it defines as the price of gas in export markets less the cost of liquefying, shipping and de-gasifying it. The report states the framework “obscures the reality that the LNG business is a competitive business, not a regulated utility in which prices at different in the value chain would be built up on the basis of costs plus a margin”.

“It’s a term may people hang onto when trying to understand what the impact of LNG will be on Queensland gas users,” Mr Mountain said. “It’s a concept that, I put to you, the sell side would have you interested in rather than the buy side.”

The report states allowing unregulated pipelines to develop would not be in the interest of local gas users and there would be a benefit to greater transparency and standardisation.

Despite recent price volatility, the report said there was not enough evidence to suggest a market failure and the Queensland Government’s role should be to make the gas market work better rather than launch an administrative intervention.

“We will be using this report to highlight the need for policy and regulatory action that ensures local gas users’ interest are fully considered in the further development of LNG exports out of Queensland, initially by drawing it to the attention of governments, policy makers and regulators,” EUAA executive director, Roman Domanski said.

“The EUAA is prepared to support a policy response to LNG that focuses on ensuring the gas market is and remains competitive in all parts of its value chain, but if governments, regulators and the gas industry do not act to ensure this outcome, then we could be left with no alternative but to advocate for more interventionist approaches.”