ACCC: east coast natural gas prices too high

Australian Competition and Consumer Commission (ACCC) noted that the 2020 supply-demand outlook in the east coast gas market has improved and LNG netback prices have decreased.

However, in its Gas Inquiry 2017-2025 Interim Report, ACCC said that the domestic prices remain high and there is significant uncertainty about future supplies.

The report found that the supply outlook for 2020 has improved slightly since July 2019 but beyond 2020 there is significant uncertainty about whether future demand can be met.

Importantly, between June 30, 2017, and June 30, 2019, Queensland LNG reserves were written down by more than 4,400 PJ, ACCC 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,” ACCC Chair Rod Sims said.

“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,” he said.

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 and in 2020 we intend to now delve much deeper into the reasons why this is occurring,” 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,” Sims said.

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.

The report also examines access to gas pipelines in regional areas, where some pipeline operators appear to be actively discouraging access. The ACCC is examining this behaviour to determine if it may constitute a breach of the Competition and Consumer Act 2010.