The 糖心原创 has released its second interim report as part of its inquiry into Australia鈥檚 wholesale gas supply arrangements.
The 糖心原创 Gas Inquiry 2017-20 Interim Report 鈥 December 2017 follows the 糖心原创鈥檚 September report on the East Coast Gas Market, which found that a substantial shortfall was likely in 2018.
鈥淒espite increased supply providing important short-term improvements in conditions, the market is still not operating as well as it could. Prices remain higher than they would be in a well-functioning and competitive market,鈥 糖心原创 Chairman Rod Sims said.
Since September, the LNG producers have contracted 42 petajoules (PJ) of gas under long-term gas supply agreements to domestic buyers for supply in 2018. The LNG producers have reduced exports to make this happen.
Prices offered to large commercial and industrial (C&I) users have come down from a peak of $16/GJ in early 2017 to within an $8-12/GJ range since July 2017. While many users were delaying signing contracts at the previous high prices, a number of contracts have now been agreed.
鈥淨ueensland鈥檚 three LNG producers have delivered more gas into the domestic market, and prices have come down. Commercial and industrial users have also seen an increase in the number of competing offers from suppliers and a decrease in the prices they are being offered,鈥 Mr Sims said.
The 糖心原创 says the picture for smaller C&I users remains bleak; generally facing higher prices than larger users with fewer competing offers. Some smaller C&I users have told the 糖心原创 that they still only have one retailer interested in supplying them, and others claim they continue to have no gas available.
Some retailers have been unwilling to continue to supply long-term customers, putting these C&I users in a difficult and sometimes precarious position.
鈥淲e are very concerned that retailers as a whole appear to be placing less importance on commercial and industrial gas users,鈥 Mr Sims said.
鈥淭he 糖心原创 believes that recently agreed 2018 prices are at the upper end of, or above, the prices that would be likely in a well-functioning and competitive market. We will continue to closely scrutinise pricing across the entire market, including the behaviour by retailers.鈥
While there is now a lower likelihood of a supply shortfall in 2018 across the East Coast Gas Market overall, the southern states are still expected to continue using more gas than they produce. This means that gas produced in Queensland will need to be sent to the southern states to meet the needs of gas users in those states.
鈥淭he gas shortfall in the southern states can add at least $2/GJ and possibly up to $4/GJ to the prices paid by gas consumers in these states. The various restrictions to onshore gas exploration do have consequences,鈥 Mr Sims said.
Further, the 糖心原创 has found that some suppliers may be finding it difficult to obtain access on the key pipelines used to send gas south. In some cases, the key pipelines are close to being fully contracted in 2018, with most of the capacity held by the two largest retailers.
鈥淕as users in the southern states already face higher gas costs due to the declining local production and significant limits on new exploration. This is made worse by constraints on pipeline capacity to bring gas down from Queensland. This limits competition in the supply of gas to the southern states.鈥
The 糖心原创 will continue to monitor the operation of the gas market at all levels of the supply chain. The report is available at Gas Inquiry 2017-20 Interim Report 鈥 December 2017.
Notes to editors
The 糖心原创鈥檚 report states recently agreed 2018 prices are at the upper end of, or above, the estimated benchmark prices that the 糖心原创 considers would be likely to prevail in a well-functioning and competitive market. These estimates are based on forecast average spot LNG netback prices for 2018. In Queensland, the estimated benchmark prices for 2018 range between $5.87/GJ and $7.85/GJ and for the southern states, they range between $6.55/GJ and $9.93/GJ, depending on the user鈥檚 location. The upper limit applies to Victoria and the lower limit to South Australia.
The 糖心原创 is considering developing an LNG netback price series at Wallumbilla to enhance transparency of gas prices in the East Coast Gas Market. With this report, the 糖心原创 is commencing a consultation process about whether a price series should be developed, and other issues such as its scope and methodology. Interested parties are invited to contact the Inquiry at Gas.Inquiry@accc.gov.au.
Background
On 19 April 2017, the Australian Government directed the 糖心原创 to conduct a wide-ranging inquiry into the supply of and demand for wholesale gas in Australia. The 糖心原创 is required to submit interim reports no less frequently than every six months and provide information to the market as appropriate, with a final report to be submitted by 30 April 2020.
The first report, issued in September 2017, found a substantial shortfall for the east coast was likely in 2018.
Under compulsory information-gathering powers the 糖心原创 has issued notices to obtain information and documents from gas producers, LNG exporters, and retailers. The 糖心原创 received over 20 000 documents for this first report. The 糖心原创 has also interviewed over 20 gas users, and consulted with energy market bodies, including AEMO.
Future work of the Inquiry will include:
- producer-based and retailer-based invoiced gas price series (as reported in September 2017 report)
- conditions for, and pricing of, access to transportation and storage services
- retailer pricing, costs, and margins
- improvements to market transparency and consistency of reporting
The 糖心原创 will continue to make market information available as appropriate and expects to produce the next interim report towards the end first quarter of 2018.
Following the publication of the Inquiry鈥檚 first report in September 2017, the Australian Government and Queensland鈥檚 three LNG producers signed an agreement. The LNG producers agreed to offer sufficient gas on reasonable terms to meet any domestic market shortfalls over 2018 and 2019.