Gas reservation could bring down household electricity prices by $270, argues report


July 11, 2019 15:25:13

Energy analysts say Australian consumers could see their electricity bills cut by up to $270 a year if a gas reservation policy is introduced nationally to safeguard domestic supplies.

Key points:

  • Centre Alliance says it has struck a deal with the Government to bring down gas prices
  • A new report from IEEFA calls for a national gas reservation policy, with a fixed price of $5/gigajoule
  • Gas industry lobby APPEA argues it could impair local supply and affordability

The Institute for Energy Economics and Financial Analysis (IEEFA) has warned that Australia could be in the position of using imports to supply 90 per cent of its gas in just three years’ time, as industry tries to respond to the energy crisis.

Gas prices have tripled since 2014, despite Australia’s liquified natural gas boom, and the pain has been felt by consumers and businesses, with some manufacturers closing down because of higher gas prices.

Driving the price increases are lucrative export contracts locked in by major Queensland gas producers — rather than selling the gas to the local market — despite a recent fall in international LNG prices, which has seen Australian wholesale prices come off their highs.

Gas action the price for tax plan support

The Morrison Government’s tax cuts were passed last week to much fanfare but that came at a political price from the Senate crossbench.

Centre Alliance senators from South Australia said they sealed a deal with the Government to bring down gas prices, and part of that could be a national gas reservation policy.

Last week, Centre Alliance Senator Rex Patrick told The Business that the deal was in draft form and he was “relatively confident” that a Federal gas reservation policy would be approved.

“[Resources Minister] Matt Canavan has indicated he is open to a gas reservation policy,” Senator Patrick said.

It is a big shift from last October, when the resources minister told The Business he thought it was too hard for the Federal Government to bring in a national reservation policy, although he supported the states doing it.

In 2017, the Turnbull Government took aim at the big gas companies and introduced the ability to restrict exports to increase local gas supply if needed, but the scheme has never been invoked by Mr Canavan.

East coast gas players behave as cartel: report

A new report by the IEEFA asserts that big gas companies act like a cartel to push up prices.

Report author, former investment fund manager and analyst, Bruce Robertson, said a national gas reservation would help lower prices.

“Contract prices are $8 to $12 a gigajoule, which is three times what we used to pay — $3 to $4 — for many decades prior to 2015,” Mr Robertson told The Business.

“The domestic gas reservation policy has to be at a price and the price that I have proposed is $5 a gigajoule.”

The Australian Competition and Consumer Commission now also supports a gas reservation scheme on Australia’s east coast.

Western Australia has been reserving 15 per cent of its LNG production for domestic use for more than a decade. It does not set a price for that gas, instead letting the market decide.

Richard Harris from the West Australian DomGas Alliance, which represents gas users, including miners and manufacturers, said the reservation policy has not deterred investment.

“It’s been very successful in making sure there is plenty of gas coming onshore in WA, as well as incentivising producers to export to Asia,” he said.

However, the gas industry peak body, the Australian Petroleum Production and Exploration Association (APPEA), has vehemently opposed a domestic reservation policy arguing it will stifle investment.

APPEA chief executive Andrew McConville argues a reservation policy would increase prices rather than lowering them.

“It’s certainly not clear yet how it would look or work because it would require a very high degree of collaboration between the Federal Government and the states,” Mr McConville said.

“That would increase complexity, would increase risk uncertainty, so it’s not without its obstacles.”

However, big players including Santos and Shell have given conditional support to Queensland’s gas reservation plans for new fields.

Mr McConville told The Business the industry would work with the Government if a reservation policy was brought in.

Industry sees imports as a price solution

Australia has recently overtaken Qatar as the world’s biggest gas producer but the industry is pushing imports as a way of lowering prices, with up to five import terminals on the cards, backed by big firms such as AGL and Japanese energy giants.

It could lead to an absurd situation where LNG is exported from the big gas plants in Gladstone, Queensland to Japan and then back into import terminals planned for Australia’s east coast, including at Port Kembla, NSW and Crib Point, Victoria.

The New South Wales Government has given consortium Australian Industrial Energy, which includes Fortescue Metals and Japanese gas giants Marubeni Corporation and Jera, planning approval to build an import terminal at Port Kembla near Wollongong.

Bruce Robertson from IEEFA said, if the Government does not act to reserve gas supplies, then Australia could be in the position of importing 90 per cent of its gas demand in just three years’ time.

“We simply shouldn’t be doing that. It’s bad for the environment, it’s bad for the economy, it’s bad for consumers.”

APPEA’s Mr McConville is critical of Mr Robertson’s assertion, pointing to IEEFA’s lobbying against fossil fuels.

He agrees the import plan is not the best option, but said it is the only alternative given Government restrictions on extracting coal seam gas in NSW and Victoria.

“On the point of import terminals directly, if that is how the market sees how it wants to capture an opportunity, then that’s the market at work,” he said.

“But it is an unfortunate situation where we might be seeing capital being invested into the development of import terminals when, in fact, there is supply sitting in NSW and there is supply sitting in Victoria.”

From his viewpoint over in the West, Richard Harris from the DomGas Alliance sees the east coast gas market as dysfunctional and thinks plans to import gas are “ridiculous”.

“It’s really a broken market, I think, certainly from a domestic point of view. Clearly there needs to be some intervention to come up with a policy.”

It remains to be seen what policy the Government comes up with, and whether that delivers lower gas prices for the crossbench senators and consumers.







First posted

July 11, 2019 15:21:26

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