East coast gas users pay too much – ACCC

Australia’s east coast gas users are paying prices significantly above export parity prices according to the Australian Competition and Consumer Commission.

The ACCC’s Gas Inquiry 2017-2025 Interim Report shows that prices offered to domestic gas users in late 2019 and early 2020 ranged from $8 to $11/GJ.

While this was down slightly from the $9 to $12/GJ range earlier in 2019, the price decline was not in line with the drop in LNG netback prices, which have been below $5.50 since May.

ACCC Chair Rod Sims said: “The ACCC is very concerned with the widening gap between domestic and export parity prices, which will have an inevitable impact on Australia’s industrial sector.

“Queensland LNG producers sold 18 LNG spot cargoes into international markets in late 2019 and early 2020, equivalent to more than 10 per cent of annual domestic east coast demand.

“This gas was sold at prices substantially below domestic gas price offers.”

Sims said that recent Australian contract gas prices do not reflect overseas forward prices.

“I am yet to hear a compelling reason from LNG producers as to why domestic users are paying substantially higher prices than buyers in international markets.

“When we have lower gas prices around the world, and the Australian market linked to world gas markets, it is vital that Australian gas users get the benefit.”

The ACCC recommended the extension of the existing Commonwealth Government’s Heads of Agreement with LNG producers, due to expire at the end of 2020, because of the demonstrated capacity of LNG producers to supply additional gas into the domestic market when needed.

Sims said: “As well as extending this Heads of Agreement, we think the government should consider strengthening the agreement’s price commitments.

“…Further measures are also needed to ensure adequate supply of appropriately priced gas over the longer term.”

The ACCC also recommended that governments seek to increase the diversity of suppliers when granting new tenements.

The report found Australia’s east coast gas market is expected to have sufficient supply in 2021, but the risk of a shortfall in the southern states in the medium term has increased.

Picture: Rod Sims

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