Gas prices on the rise again in ‘extraordinarily tight’ market

Australia’s competition watchdog is forecasting another spike in gas prices across south-eastern states in the next two years, warning the market is on a knife-edge and companies that rely on the fossil fuel could face further pain.

In the latest update of the Australian Competition and Consumer Commission’s long-running inquiry into the gas market, chairman Rod Sims reiterated that opening up new domestic sources of gas supply would be critical to avoiding price rises and potential shortfalls.

The ACCC says a tight gas market is driving up prices for companies that depend on the fossil fuel. Credit:Glenn Hunt

“There’s no question that there’s a very tight squeeze on people that want gas,” Mr Sims said on Tuesday.

Long-term gas supply contracts in Australia’s south-east were being offered at $6 to $11 a gigajoule in 2022, the ACCC inquiry found, while buyers were being offered gas at $9 to $10 a gigajoule from 2023.

Australia is one of the world’s top shippers of liquefied natural gas (LNG). Most of its LNG is produced in the nation’s north, far away from demand centres in the south-eastern states, and exported on long-term contracts to overseas buyers.

Energy Users Association of Australia chief executive Andrew Richards, who represents industrial gas users such as Qenos, Incitec Pivot and Brickworks, said in July prices for long-term wholesale contracts of $10 a gigajoule threatened the viability of Australian companies that relied on gas for power supply or for feedstock in chemical manufacture.

“Some people feel pain at $10 gas but some people go out of business,” he said.

Mr Sims said it would take only a combination of relatively small events, such as a disruption to a gas supply project, to force a shortfall.

“The gas market is just extraordinarily tight at the moment,” he said. “That puts the sellers of gas in a great position and if you’re a user of gas you’re in a pretty dreadful position.”

Australian Petroleum Production and Exploration Association chief executive Andrew McConville said gas producers were continuing to bring more supply online for domestic customers. Senex Energy told the stock market on Tuesday its Atlas project in Queensland was expected to deliver a “material” increase in gas sales in the next 12 months.

The ACCC’s findings challenge the federal government’s hopes of a “gas-fired” recovery from the COVID-19 pandemic, which aims to stimulate economic activity and jobs by delivering more affordable gas to companies that rely on it.

The plan includes investing to support new gas infrastructure and production fields, such as the Beetaloo Basin in the Northern Territory, but companies drilling there have not yet committed to any projects and new gas supply remains years away.

Resources Minister Keith Pitt said the government was supporting new gas projects to keep prices as low as possible.

“The government will continue to monitor developments in the gas market to make sure Australians continue to have access to affordable and reliable energy supplies,” Mr Pitt said. “We continue to call on all states to ensure gas resources can be developed as we know increasing local gas supply is the best way to drive down prices.”

Energy Minister Angus Taylor said the government was supporting the industry to develop new supply through the Interim National Gas Infrastructure Plan (NGIP), which has committed $39 million for infrastructure and storage projects.

The federal government in January renewed a deal with Queensland LNG exporters, which is monitored by the ACCC, to offer any uncontracted gas to customers in the domestic market at a “reasonable price” that excludes international shipping costs.

Mr Sims said the exporters did not “adequately demonstrate compliance”.

“The initial responses from LNG producers were concerning given that in the near future Australia’s southern states may depend on their surplus gas,” he said. “We expect to see better compliance from LNG exporters over the next 12 months.”

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