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The ACCC’s latest gas report has revealed that a supply shortfall in Australia’s east coast gas market is increasing in likelihood, and indicates a finely balanced supply outlook for 2022. 

The ACCC’s Gas Market Inquiry 2017-2025 interim report found a shortfall of 2 PJ could arise across the entire east coast gas market next year, driven by a shortfall of up to 6 PJ in the southern states, if LNG producers export all of their surplus gas.

This forecast is dependent upon demand from gas powered generators decreasing to record lows, and a material volume of gas from currently undeveloped reserves being supplied.

ACCC Chair, Rod Sims, said, “The precarious supply situation for next year highlights the importance of the new Heads of Agreement that the Australian government signed with LNG exporters in January 2021.”

Under the Heads of Agreement, LNG exporters must offer uncontracted gas to the domestic market on internationally competitive terms before it is exported, and provide relevant material to the ACCC to demonstrate their compliance.

“The initial material LNG producers provided to us did not adequately demonstrate compliance with the new Heads of Agreement and they will need to lift their game,” Mr Sims said.

“The initial responses from LNG producers were concerning given that in the near future Australia’s southern states may depend on their surplus gas. We expect to see better compliance from LNG exporters over the next 12 months.”

The report shows that prices for contracted gas in the east coast market through to February 2021 remained at the lower levels observed during 2020. However, the tightening supply situation means these prices may not last.

“Domestic spot prices for gas spiked in July but the increase was driven by a particular set of circumstances that won’t necessarily impact offers for long-term contracts. Fortunately, we have subsequently seen some softening of those high spot prices in August,” Mr Sims said.

The ACCC observed that price offers for supply in 2022 trended from $6-11/GJ at the start of 2020 to $6-8 in the second half of 2020.

Although lower prices were welcomed by commercial and industrial users, many users are struggling to obtain offers for supply beyond 2022. Where supply is offered, prices are often at $9-10/GJ.

“We are also concerned that there have been significantly fewer offers for gas supply being made in the domestic market recently,” Mr Sims said.

The ACCC said the difficulty in securing offers beyond 2022 may have been partially caused by uncertainty around the Gas Code of Conduct and the ACCC’s LNG netback price series review. It said this demonstrates that it is important both are completed in a timely manner.

The ACCC’s LNG netback price series review is underway and will be completed by September 2021, following two rounds of public consultation.

The netback price series review has been informed by the findings from a detailed review of gas supplier pricing strategies. This gas report sets out the ACCC’s findings, which includes that oil prices appear to be a key influence on domestic pricing, and competition has been a limited constraint on prices.

Federal Treasurer, Josh Frydenberg, said the Government will continue to ensure domestic gas users receive the best deals and that prices remain affordable.

“The latest ACCC report, along with more recent gas market activity, demonstrates the importance of the gas-fired recovery to ensure the best outcomes for Australian households and businesses,” Mr Frydenberg said.

The Australian Petroleum Production and Exploration Association (APPEA) also responded to the report, stating that it ‘reaffirmed for the tenth straight time there is no shortfall in Australia’s domestic gas market.’

APPEA Chief Executive, Andrew McConville, said, “Our members are constantly working with customers to meet their energy needs. This includes signing more than 100 gas supply agreements and other commercial arrangements since 2012 including just last month Senex signing a long-term domestic gas sales agreement with Adbri Limited to supply up to 11 petajoules (PJ) of natural gas to support Adbri’s South Australian manufacturing operations to 2030.”

Mr McConville said that Australia has abundant gas resources and the real answer to supply issues and competitive prices is to safely develop more gas resources close to customers.

Separately, this year the ACCC will examine competition in markets for the exploration, production and processing of gas for the east coast, including the factors affecting when gas is brought to market. The ACCC will report on this, as well as further developments in the east coast gas market, in its January 2022 report.

Read the ACCC’s Gas inquiry July 2021 interim report here.

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