The east coast gas market has experienced a triple-whammy of local and international events and changes, Australian Competition and Consumer Commission Chairman Rod Sims said today at the Australian Domestic Gas Outlook Conference in Sydney.
“First was the introduction of LNG with its huge impact on the demand for gas,” Mr Sims said.
“Second, oil prices have fallen faster and further than nearly anyone thought, which is reducing the incentive and ability to explore for gas.”
“Third, regulatory uncertainty and exploration moratoria are making life very difficult for the upstream sector,” Mr Sims said.
“In this environment commercial and industrial gas users particularly have had a difficult time.”
Speaking ahead of the ACCC’s formal report to Government, Mr Sims provided key observations on the east coast gas market.
“First, more sources of gas supply for south eastern Australia in particular are needed to constrain gas prices.”
“The key point is that the effect of the level of LNG netback prices on domestic gas prices depends more than is realised on the level of competition in the market,” Mr Sims said.
“With many gas suppliers competing for business their (seller) alternative is to send gas to Queensland for export. With few gas suppliers competing for business you need to ask why would they sell their gas for less than the buyers alternative of buying gas from Queensland?”
“The difference in the domestic price of gas, therefore, depends on the level of competition to supply gas, and can be double the transport cost to Queensland, which is a large amount,” Mr Sims said.
This also illustrates the importance of gas transmission and transport costs.
“Second, therefore, we also have to ensure that regulation, or the threat of regulation, is effective as it applies to natural monopolies like gas transmission pipelines. This currently does not seem to be the case.”
“Likely ineffective regulation of gas transmission pipelines is of particular concern because monopoly pricing can lead to inefficient downstream investment decisions and can limit investment in upstream exploration,” Mr Sims said.
Mr Sims said the ACCC is due to hand its report of the East Coast Gas Inquiry to the Minister for Small Business and the Assistant Treasurer, the Hon Kelly O’Dwyer MP, by 13 April 2016.
“As part of the formal inquiry, we have held more than 30 private and public hearings with gas producers, retailers and customers.”
“We have consulted with over 50 interested parties and received around 73,000 company documents, reports, contracts and other documents,” Mr Sims said.
Mr Sims said the ACCC’s inquiry will highlight inefficiencies which can be addressed and discusses where new policy or better informed policy decisions may be needed.
See also the Keynote address: Observations on the east Australian gas market.