Oz East Coast Gas Supply-Demand Outlook Has Improved: ACCC
The 2020 supply-demand outlook in the Australian east coast gas market has improved and LNG netback prices have decreased, but domestic prices remain high and there is significant uncertainty about future supplies, the Australian Competition and Consumer Commission (ACCC) said in its Gas Inquiry 2017-25 Interim Report released on February 18.
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 30 June 2017 and 30 June 2019 Queensland LNG reserves were written down by more than 4,400 petajoules, the report 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.”
The report found that 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 A$9-A$12/gigajoules. An LNG netback price is a measure of an export parity price that a gas supplier would expect to receive for exports.
“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/gigajoules 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.
“Unfortunately, the concerning trend of companies closing regional manufacturing plants that are now unprofitable due to high gas prices has continued,” Sims said.
The report also examines access to gas pipelines in regional areas, where some pipeline operators appear to be actively discouraging access. The ACCC said it is examining this behaviour to determine if it may constitute a breach of the Competition and Consumer Act 2010.
Upstream lobby group Australian Petroleum Production & Exploration Association said: "The real answer to ensuring gas prices are competitive is to support safe and responsible development of natural gas resources. Working together to make this happen should be the focus of government and industry in 2020 – especially in Victoria and New South Wales – to support all Australian businesses and households that rely on sustainable gas supply.”