East coast gas prices ‘still too high’ despite improvement

Gas prices on Australia’s East coast are still higher than they would be in a well-functioning and competitive market, according the latest report from the Australian Competition and Consumer Commission (ACCC).

Although the second interim report on the East coast gas market has shown “important short-term improvements”, it says that a substantial shortfall is likely in 2018.

“We are very concerned that retailers as a whole appear to be placing less importance on commercial and industrial gas users,” said ACCC chairman Rod Sims.

“The ACCC 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.”

Since September, 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, the report confirms that a number of contracts have now been agreed.

“Queensland’s three LNG producers have delivered more gas into the domestic market, and prices have come down,” Sims continued.

“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.”

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.

“The 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,” Mr Sims said.

“Gas 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.”