Via Domainfax:
The Australian Competition and Consumer Commission has slammed the gas market and the ban on exploration by some states, saying the fundamental supply problem is causing prices to stay too high.
Director of the ACCC’s gas inquiry unit, Nicole Ross, said there were three choices for the market, firstly it could return to a state of short supply and high demand, or stay on the current trajectory where governments are stepping in to work with gas companies to address market power issues.
“This is better than the first path, but not good enough; prices are still too high and fundamental problems remain,” she said.
Ms Ross said there is only one “real palatable choice”.
“[We have] to address the fundamental supply problem, particularly in the south. Increased gas supply on the east coast would better serve domestic gas users, especially when global prices are high,” Ms Ross said.
“However, this is not a choice for the ACCC; this is a choice for governments.”
“Market forces are not operating as they should for the benefit of the customer, the industrial user, the household, and the generators of electricity,” Ms Ross said.
The ACCC said while the gas pipeline industry falls short of actually hoarding capacity and declining to transport gas at full flow, Ms Ross said: “we have not seen much secondary capacity trading, despite the existence of spare capacity throughout the year.”
With respect, ACCC, pull your head out of the test tube. More gas is good, sure. But it won’t lower prices enough given all of the cheap gas is already gone. As well, what’s to stop new gas from going offshore as well? Nothing. If we’re going to free up gas then it must be produced by a national firm with strict guidelines on capital return and distribution.
The ACCC allowed the east coast cartel to develop. The ACCC stuffed around for years with idyllic solutions while the market failure got worse. Now it’s at it again.
The market is only broken because a number of private firms mis-allocated capital into loss-making export plants. They are making money only by applying discriminatory pricing to the local market. The whole discussion ignores this one simple fact at the base of the market failure and by doing so frames the entire discussion as a gas industry bailout.
Don’t bail them out. Force the cheap gas to stay here and let their shareholders pay for disastrous decisions. Deploy more strict domestic reservation that keeps another 200Pj here at a capped AUD price. We are talking about a total of roughly 9% of the cartel’s export volumes. Let the shareholders take the pain not everybody else.
Meanwhile, the non-solutions keep coming:
The WA pipeline idea is garnering keen support from some large industrial gas users, who are worried about gas prices being linked to Asian LNG prices as would be through imports.
“LNG terminals are not the answer,” said Stephen Bell, chief executive of basic plastics maker Qenos, which uses gas at plants in Altona and Port Botany and has been hard hit by rising prices.
“LNG won’t keep a cap on prices as LNG prices will go up. LNG may work for peak demand but for people like us, it is not going to solve the problem,” he said.
But AGL cast doubt on the commercial case for the pipeline, which would likely cost at least 20 times more and require tariffs covering several thousand kilometres of transportation.
“I’m yet to see the economics stack up for a West-to-East pipeline of 3000 kilometres compared to LNG imports,” said Phaedra Deckart, AGL’s general manager, energy supply and origination.
“We’ve certainly looked at that type of pipeline and done some back-of-the-envelope costing. It’s a $6 billion investment to deliver new sources of supply compared to a $250-$300 million investment to deliver LNG imports.”
Yeh, but it’s volumes are higher and you don’t have to pay for liquifaction and shipping. Even so, unless it too has price caps, is publicly owned and based on reservation, it won’t work either.
Thankfully, Victorian Treasurer Tim Pallas gets it:
Victorian Treasurer Tim Pallas has accused the federal government of an “absurd and irresponsible” failure on energy policy by refusing to enact a cap on gas exports, saying the needs of Australian businesses must be met first…
“Thanks to the commonwealth’s flawed energy policy, too much of our gas is being sent overseas,” he will say.
“That’s absurd and irresponsible — but it doesn’t have to be this way. It is time the Prime Minister ensured Australian gas is being used for Australian households and Australian businesses first.”
Victoria has previously called for caps on gas exports in a bid to preserve more for the domestic market…The Australian Competition & Consumer Commission has found Victorian businesses are paying the highest costs in the country for gas — as much as $9.93 per gigajoule — with up to $4 per gigajoule being added to prices to manage the cost of bringing gas down from Queensland.
Exactly, fixed price east coast domestic reservation is the only answer.
