Aus gas users lose out on market shift: ACCC

ACCC chairman Rod SIms

ACCC chairman Rod SIms

Australia’s gas market has not only shifted focus from domestic supply, it has entered into a new dynamic targeting LNG exports, which is leaving local manufacturing high and dry.

The Australian Competition and Consumer Commission (ACCC) today let slip a number of preliminary findings from its year-long inquiry into the eastern coast gas markets.

ACCC chairman Rod Sims revealed details of the inquiry to a room full of industry heavyweights at the two-day Eastern Australian Energy Markets Outlook in Sydney.

The commission found that the emerging LNG export market was threatening domestic supply and demand for the commodity, and that consumer complaints over gas prices were founded.

“First, it is apparent that the arrival of the major LNG projects has upended the east coast gas market, likely permanently,” Mr Sims said, noting that production at the Queensland Curtis LNG Project, Santos’ GLNG Project and Australian Pacific LNG project are all still ramping up.

All three projects, valued at more than $63 billion, are estimated to contribute a third of the $46.7 billion worth of Australia LNG export values by 2019-20.

“By the time all six trains are operating, east coast gas production will need to have tripled to meet both LNG and domestic demand from industrial, commercial and household customers and remaining gas-powered generation.”

And while the onset of coal seam gas developments in the Cooper Basin was anticipated to provide some respite for the supply glut, Mr Sims said the east coast market remains threatened by gas supply uncertainty.

The shift in market focus has prompted a scarcity in gas supply offers to local consumers since final investment decisions were made at Australia’s major LNG projects in 2010-11, the ACCC chairman added.

The ACCC suggested that upstream LNG producers were favouring trades among themselves, instead of prioritising consumer demand. And when consumer deals had been made, the life of the contracts were dramatically shorter than in previous years.

“We have evidence that many domestic users went from a market where they received, say, 3 – 5 offers of supply on terms that were able to be negotiated, to one where they received zero or one true offer, on largely take-it-or-leave-it, inflexible terms.”

“When you look at some of the gas deals that were struck in this period, it is clear that a number were related party transactions with the LNG projects shoring up supply positions, or other deals between suppliers.”

The issue of shortened supply contracts was raised by Brian Green, Energy and Regulatory Manager, Australian Paper, Chairman, Energy Users Association of Australia.

Citing a 2014 study by Deloitte Access Economics, which predicted a loss to manufacturing’s contribution to GDP of $88 to 100 billion as a result of LNG supply shortages brought on by the market’s shift, Mr Green questioned the benefit of LNG to Australia.

“Where is this net benefit to the Australian community from exporting our energy,” he asked.

“(The Australian Petroleum Production and Exploration Association) would say ‘the market is healthy, just look at the number of trades we’ve done’. I would say, yes, but you have traded only among your members, between gas producers, not between producers and consumers.”

He added that Australian Paper alone has gone from being able to negotiate 10-year gas supply contracts to just one year.

The ACCC’s inquiry is due to be presented to the federal Government by April 2016.

Eddie Morton is the associate editor at Gas Today:

Enter your details to subscribe to the free fortnightly Gas Today e-newsletter

Thank you for signing up for the Gas Today Online Update.