APIA: Energy Policy Must Address Looming Gas Price “Bubble”, Australia

The Federal Government’s Energy White Paper’s increased focus on the challenges facing Australia’s natural gas industry is welcome, but there remains a need to address a looming gas price “bubble” which could threaten Australian industries that rely on gas as a major input, according to the nation’s gas transmission industry.

According to work being undertaken by the Australian Pipeline Industry Association, and economic consultancy, ACIL Tasman, LNG exports from Australia and the slowdown in CSG development may lead to a supply shortfall of natural gas and an up to seven-year east coast gas price “bubble”.

“Such a short-to-medium term price hike has the potential to close down Australian businesses unable to deal with an explosion in the price they pay for their gas,” Cheryl Cartwright, Chief Executive of the APIA, said.

“Federal Government claims that market development initiatives such as the Gas Bulletin Board, the Short Term Trading Market and a proposed gas supply hub at Wallumbilla in Queensland can assist in providing access to affordable gas are, at best, misguided,” Ms Cartwright said.

“While such mechanisms increase information availability and demand flexibility, they do not provide more gas to Australian industry, nor will they reduce prices. The Gas Bulletin Board and Short Term Trading Markets are already in place and are doing nothing to prevent the supply and prices issues facing Australian industry.”

Ms Cartwright’s warning was issued in the response by the APIA to the just released Federal Government’s Energy White Paper.

“While the Energy White Paper is welcome, and its call for regular review of the energy economy demonstrates foresight, there remains the fundamental challenge facing Australia’s energy industries, and that is, the cost to the domestic economy of linking national gas prices to LNG-export prices,” Ms Cartwright said.

“However, APIA agrees with the suggested part-solution to addressing the price bubble, and that is improved access to the nation’s vast gas reserves in order to increase gas supply.”

“The current delays in CSG developments in Queensland and New South Wales will coincide with LNG-export demand coming on line, and exporting companies will need to draw on gas that had been anticipated to be available to Australian gas users.”

Ms Cartwright pointed to a graph, developed by ACIL Tasman, which demonstrates the expected seven year east coast price “bubble” commencing from 2013 and tailing off by 2020 as gas production eventually meets market demand.

“After this ‘bubble’, or without the ‘bubble’, it is expected the price of gas would increase, but remain affordable,” Ms Cartwright said.

“Right now, the answer to affordable gas prices is to not tinker with end markets, nor gas transportation – the solution is to address gas supply – and ensure that businesses threatened by a short-to-medium term price hike can survive until the price levels out.

“With the vast resources of natural gas in Australia, improved access will address supply issues – which will in turn assist in bringing prices down. In the meantime, Government should seriously consider whether it wants a short-term gas supply crisis to permanently damage some sectors of the economy.

“If businesses are not viable in the long-term, then market forces should allow them to close or move offshore, but if the dramatically high price of this input to their business is temporary, the Government should step in.

“As we have seen already, a failure by Governments to step in has led to the closure of many manufacturing businesses – including steel pipeline manufacture, which has closed forever because of the high Australian dollar and the tardiness of any useful action by the Government’s Manufacturing Taskforce, led by former Queensland Premier Peter Beattie.

“It would be a tragedy if this mistake is repeated. Future transmission infrastructure construction will be hampered by the lack of local production.”

[mappress]
LNG World News Staff, November 08, 2012; Image: APIA