The Gas Inquiry 2017-25 Interim Report released by the ACCC on 18 February found that the supply outlook for the east coast gas market has improved slightly since July 2019, but there is significant uncertainty about whether future demand can be met.
The report also found that while LNG netback prices have decreased, domestic prices remain high.
Between 30 June 2017 and 30 June 2019, Queensland LNG reserves were written down by more than 4,400PJ.
ACCC Chair, Rod Sims, said, “Southern states risk facing a shortfall in the medium term unless there is more exploration and development in the south, or new infrastructure to bring more supply to southern states.
“We continue to urge state and territory governments to assess individual gas development applications on a case-by-case basis. We also suggest they actively manage tenements to prevent ‘warehousing’ of gas, and that they coordinate the development of pipeline and storage infrastructure to avoid unnecessary duplication.”
While LNG netback prices have been falling since May 2019, with forward LNG netback prices for 2020 well below netback prices seen in recent years, prices offered in the east coast gas market have remained mostly steady within a range of $9-$12/GJ.
“The recent significant divergence between the netback prices and the prices offered is a concern for the ACCC,” Mr Sims said.
“Indeed, average netback prices expected for 2020 have been under $7/GJ since November 2019, which is well below prices being offered to domestic buyers.
“We have been watching prices closely, and have observed instances where prices offered have included a fixed price component, on top of an LNG spot price linked component.”
Commercial and industrial gas users have continued to try to reduce their overall gas costs, but most have reported that they have largely exhausted all opportunities to reduce their gas use through energy efficiency improvements.
“Unfortunately, the concerning trend of companies closing regional manufacturing plants that are now unprofitable due to high gas prices has continued,” Mr Sims said.
Australian Petroleum Production and Exploration Association (APPEA) Chief Executive, Mr Andrew McConville, said the report showed the industry has increased substantially the flow of natural gas to the east coast domestic market and this will continue into the future.
“The ACCC finds that prices have eased since early 2017, with producers – particularly Liquified Natural Gas producers – making significant volumes of additional gas available to the local market,” Mr McConville said.
“To ensure the investment needed to continue to bring new supply into the market occurs, it is important governments ensure the investment regime in Australia is supportive and resists the temptation to intervene further in the market.
“The real answer to ensuring gas prices are competitive is to support safe and responsible development of natural gas resources.
“Working together to make this happen should be the focus of government and industry in 2020 – especially in Victoria and New South Wales – to support all Australian businesses and households that rely on sustainable gas supply.”
Minister for Energy and Emissions Reduction, Angus Taylor, said the report was good news for households and businesses in eastern Australia as increased supply drives down prices.
“That’s why we signed our landmark state deal with New South Wales to get more supply into the market,” Mr Taylor said.
“The ACCC has also found that gas retailers have the ability to absorb potential cost increases by reducing their considerable margins rather than passing on costs to consumers. I strongly urge the same benefits to be passed on to manufacturing and industrial users, who may not be receiving a fair deal in long-term contract negotiations with gas suppliers.”