APPEA calls IEEFA gas pricing report flawed

The Australian Petroleum Production & Exploration Association (APPEA) called the latest analysis of gas and electricity prices and policies in Australia flawed.

The report was conducted by the Institute for Energy Economics and Financial Analysis (IEEFA) claiming that Australia’s high electricity prices are caused principally by high gas prices.

Commenting on the analysis, APPEA CEO Andrew McConville said, “Firstly, gas does not set the price of electricity across the national energy market (NEM) in Australia.”

He added that there are several reasons why Australia has electricity affordability issues, including that wholesale and retail markets are too concentrated; poorly designed regulation and policy have added significant costs to electricity bills.

“In addition, while prices for new contracts have increased, average prices across the economy have not risen by nearly as much – the average price across the Australia economy in 2014 was around $US4/mmbtu and is now just over $US4.50/mmbtu,” McConville said.

Rising production costs, supply restrictions that resulted from bans and moratoriums in southern states have bumped the supply prices.

McConville noted that the report is also wrong on claiming that Australian gas prices are higher than in South East Asia, noting that Australia’s average gas prices are among the lowest in Asia Pacific, according to the survey by the International Gas Union.

“The IGU report found the average wholesale gas price in Australia last year was about 40 per cent less than the average wholesale price for the Asia Pacific region.  So Australian gas consumers are not paying prices above the average in Japan or other LNG importing nations in Asia,” he said.

In terms of calls for a gas reservation policy, APPEA notes that Canada, the USA, Netherlands, Norway and United Kingdom allow their gas markets to set wholesale gas prices.

In 2016, the ACCC’s gas inquiry report found: “Over time, reservation policies would reduce the likelihood of new sources of gas being developed to the detriment of the level and diversity of supply for domestic gas users.”

The Productivity Commission also highlighted concerns, saying domestic gas reservation could distort important signals for adjustment and was unlikely to be efficient or effective in the long run.

“A domestic gas reservation policy would act as an implicit tax on Australian gas production that diminishes incentives to invest in future gas production and exploration.  This can lead to lower investment and lower gas production which in turn may cause higher prices,” McConville said.