It looks like a gas shortage in Australia next year will be avoided, but prices will remain high

A LNG tanker at Karratha, Western Australia. Image: Woodside.

The Turnbull government’s deal with Australia’s gas producers to boost domestic supply in 2018 has averted a feared shortfall, but prices remain high for now, the country’s competition watchdog has found.

The Australian Competition and Consumer Commission’s (ACCC) second quarterly report into the country’s gas supply found that prices have fallen for large commercial and industrial (C&I) users from a peak of $16/GJ in early 2017 to a $8-12/GJ range since July 2017, and domestic users who delayed signing contracts at the higher price have now signed long-term gas supply agreements for 42 petajoules (PJ) of gas.

But the ACCC says the outlook for smaller C&I users “remains bleak”, with higher prices, after they told the regulator that only one retailer was interested in supplying them, and others said they have no gas available.

ACCC Chairman Rod Sims said prices remain higher than they would be if the market was operating properly and the 2018 prices are “at the upper end of, or above” where they should be.

“Despite increased supply providing important short-term improvements in conditions, the market is still not operating as well as it could,” he said.

“We are very concerned that retailers as a whole appear to be placing less importance on commercial and industrial gas users.”

Energy policy and gas prices have been key concerns for Prime Minister Malcolm Turnbull, who personally intervened and announced in June that the government will give itself the power to license gas exports in an attempt to bring down domestic gas prices.

He threatened to block exports unless the energy producers agreed to boost local supply.

The ACCC’s new report found “a lower likelihood” of a supply shortfall in the East Coast Gas Market next year, and southern states will need to access gas produced in Queensland to meet local shortfalls, which Sims says will “add at least $2/GJ and possibly up to $4/GJ to the prices paid by gas consumers in these states”.

The competition boss also took aim at moratoriums on gas exploration in NSW and Victoria. Adding to the problems, the country’s two largest retailers, AGL and Origin, had already contracted most of the capacity for the key pipelines in the south.

“Gas users in the southern states already face higher gas costs due to the declining local production and significant limits on new exploration,” Simms said.

“This is made worse by constraints on pipeline capacity to bring gas down from Queensland. This limits competition in the supply of gas to the southern states.”

Speaking on ABC radio’s AM program this morning, Treasurer Scott Morrison said the ACCC report was encouraging.

Morrison said if demand was at the high end of the forecasts for next year, leading to a potential shortfall of 33 petajoules, he was confident the gas suppliers would act to meet that demand.

“The Commonwealth has acted and the issue now is still an issue of supply, particularly in the southern states, and that’s what the ACCC’s highlighting. The gas that we need is under people’s feet in New South Wales and in Victoria,” he said.

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