Tuesday, March 14, 2017
Gas shortage: 'Worst fears being realised' as residents most likely to bear cost of shortage
Australia's "worst fears are being realised" when it comes to gas supply, and the market is in crisis with residents most likely to bear the costs, Australian Competition and Consumer Commission (ACCC) chairman Rod Sims has said in a speech to a gas conference.
The scarcity of available gas has seen prices jump up to four times above historic levels.
The ACCC said there were three main factors affecting the east coast's gas supply: the introduction of LNG exports which tripled the demand for gas, oil prices falling faster than forecast, and regulatory uncertainty that has significantly limited or delayed gas supply.
"At best, how can these companies invest and plan such high and uncertain gas prices and with considerable supply uncertainty. At worst, plants will close and jobs will be lost purely as a result of the current gas crisis."
The ACCC said it had observed a year ago that wholesale gas prices made up 15 to 30 per cent of total residential gas bills and household bills would increase by 5 per cent in NSW and 11 per cent in Victoria, if wholesale gas prices increased by $2 a gigajoule (GJ).
But, the ACCC now says wholesale gas prices have, or will increase by many times that amount.
Australia is home to some of the largest gas deposits in the world, but a $200 billion investment in liquefaction and shipping facilities has seen it transformed into the world's biggest gas exporter.
Three massive plants at Curtis Island are contracted to supply Asia with gas, and an unintended consequence of the gas bonanza has been to create shortages at home.
Research by economic forecasters BIS Shrapnel and commissioned by the AWU suggests that without affordable and reliable gas, one in five heavy manufacturers will close by 2021, with the loss of 235,000 jobs.
Currently, there are seven, but soon to be 10, export plants liquefying gas and shipping it offshore, and recent research has found the country needs to lift its total energy output by 50 per cent just to meet its expected exports in 2020.
"Ordinarily, higher gas prices would provide producers an incentive to increase investment in exploration and development activities," Mr Sims said.
"However, the east coast gas market was caught in a 'clash of cycles', with historically high domestic gas prices coinciding with falling international oil prices."
The ACCC said LNG gas developers fell into a trap of assuming $100+ oil prices would continue, rather than planning an assumption of the long-run average of prices around $55.
Mr Sims said regulatory uncertainty delayed or stopped development, and that the industry had not expected Victoria to ban all onshore gas exploration and production until 2020. Victoria implemented the policy on environmental and social considerations.
Production forecasts indicated that from the start of the year, meeting expected demand would require the development of new reserves, the ACCC said.
"If I was providing private advice to the LNG producers, I would say they would be well advised to support the domestic market as much as they can at this critical time.
"They could, for example, weigh carefully their willingness to sell gas on the LNG spot markets above meeting their contractual commitments. Alternatively, they could develop additional gas for the domestic market."