ACCC Report: Australia's East Coast Is Running Low On Gas Supplies

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The Australian Government has released the ACCC's interim report into the supply of and demand for wholesale gas in Australia - and it shows a supply shortfall for the east coast, which is pushing up prices.

"The interim report projects a supply shortfall in the east coast gas market of up to 55 petajoules (PJ) in 2018, which could be as high as 108 PJ if domestic demand is higher than expected," ACCC Chairman Rod Sims said.

One PJ is enough gas to supply the residential needs of Warrnambool, Wollongong or Penrith, or a large industrial user for a full year, Sims explained.

"The significant shortfall is reflected in prices being offered to commercial and industrial customers for 2018 supply which are multiples of historical price levels of $3-4/GJ."

Sims says the effect of higher gas prices is felt right across the economy, from households to big business. He points out that gas and gas-powered generators are also an important part of electricity generation, so higher gas prices feed in to higher electricity prices, leading to a double hit for many.

"Over a third of the commercial and industrial users the ACCC interviewed are considering either reducing production or closure due to high gas prices," Sims aid.

"For many of these users, gas is a feedstock to production or an essentially irreplaceable source of energy, and with the products they make often supplied on international markets higher gas costs cannot be passed on."

The ACCC reported last year, in its East Coast Gas Inquiry, that the Queensland LNG projects caused a "significant disruption" to the market and the supply-demand balance. In 2018, the LNG projects will together produce over 70 per cent of the east coast's gas and account for two-thirds of the east coast’s gas demand.

"The expected shortfall could be reduced to a significant extent if the expected sales on international LNG spot markets were instead redirected to the domestic market," Sims said.

"It is unclear why we are not seeing more steps being taken by the LNG projects to supply more gas into the domestic market. Although we accept some additional coordination costs would be likely and agreement of the joint venture parties of the LNG projects is required."

According to ACCC, domestic users in the south are facing "very high" gas prices, which it says is largely a result of the expected supply shortfall in the south and lack of competition between the southern gas suppliers. Prices in the south could be significantly reduced if additional sources of supply are developed in the south to increase the level of supply and diversity of suppliers.

“We are seeing domestic prices on the east coast well in excess of the appropriate benchmark levels and many C&I users needing to recontract for supply in 2018 and beyond are holding out in the hope of improved conditions. There is a lot of pent-up demand," Sims said.

"This situation on the east coast is in stark contrast with the situation in Western Australia, which is not connected to the east coast gas market. The west is expected to be well supplied in the short to medium term. For C&I users in the west, there are five suppliers competing for their business and prices are low, in the region of $6/GJ. On the east coast, particularly the southern states, users generally have only one supplier, and price offers in 2017 have generally been in the range of $10-16/GJ."

The Australian Government has recently implemented the Australian Domestic Gas Security Mechanism, which allows for the restriction of LNG exports in an expected shortfall year, with the aim of directing those supplies to meet domestic demand.

"Export controls may go some way to addressing this shortage in the short term," Sims said.

"However, further steps are needed to address the underlying problems of lack of gas supply and lack of diversity of suppliers in the east coast gas market. Supply-side solutions are needed to bring more supply and suppliers into the domestic market, particularly in the southern states."

[ACCC Report]

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Comments

    RENEWABLES + STORAGE = ENERGY SECURITY .

      Not sure its that easy for a few reasons. First, as promising as it looks, theres no absolute certainty with renewables yet. Secondly, its not something you can just go to overnight, there are still timeframes to build renewables, integrate renewables, and determine the cost of renewables. And thirdly, there are significant political issues that you'd need to get past. The energy industry is a pretty good friend to both parties...

      Make no mistake, every person in the energy business, on BOTH sides, has an agenda and are skipping details that undermine their position. Right now, it needs to be a mix of technologies, and as the older fossil fuel sources expire, they can be replaced. We should have a much clearer idea of how far they can go by then. South Australia will be a good test case.

      I think we're clearly heading there, but its too soon right now.

      For the sake of this story, there needs to be less export, and more domestic use. But that doesn't serve the purpose of the energy companies, who see the artificial shortfall as an easy profit. Yay for selling off necessary infrastructure...

      Even a few percent less exported would drive the price down here in Australia. It wouldn't make a difference on the global market, there are numerous other sources that can readily fill the gap, but it would make a massive difference here.

      Energy Security is finding the most reliable technology that has a proven track record with an abundance of resources... COAL! The only blackouts should be faults or natural disaster... NOT ran out of fuel!

      Until such time Australia can secure a surplus of power to meet demands, renewables shouldn't be the only answer. Energy storage is an emergency solution for times the renewables can't meet demand... which is a fundamental flaw to begin with.

      and blackouts like South Australia had last year.

        Blackouts due to transmission towers being knocked down by the wind. If you are going to grasp at straws at least make sure your statements are factually correct buddy.

      yes but it's not that easy. it takes time to transition. if you don't take the time, care and patience, you will literally destroy economies.

    Congratulations is due to our various governments that in a country with an over-abundance we are running out.

    To whom it may concern,
    The government does not control private enterprise.

    Australia is one of the largest exporters of natural gas yet somehow we have a domestic shortage. Explain that logic.

      Simple. You give all your Natural Resources away to Foreign Corporations with little to zero clauses. In exchange for donation to your political party.

    The world is laughing at us
    Abundance of resources Coal , Sun , Land
    A bunch of brilliant scientists and we have the money to build the infrastructure to do the lot.
    It might be time for these stupid Politicisation to make Australia Great.... not again just great.

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