ACCC backs gas price controls

It’s taken me years to beat sense into the ACCC. It began to turn a few years ago but now it’s 100% on board. At The Australian:

The competition regulator and major gas buyers say Australia’s big east coast LNG exporters have nothing to fear from the potential introduction of formal price controls, arguing the move is justified to ensure a fair price for domestic users.

A draft heads of agreement sent to Queensland’s three LNG producers refers to a pricing mechanism for the first time, following sustained pressure from Australia’s big manufacturers for cuts to their gas costs, The Australian reported on Friday.

The Australian Competition & Consumer Commission recommended the heads of agreement should strengthen requirements around price offers to gas buyers and said producers had no grounds to push back against an LNG netback formula — a local LNG price that takes out the cost of sending gas to Asian customers.

“The feedback I get from the contact I do have with politicians is that something like that will go into the heads of agreement. That’s my understanding,” ACCC chairman Rod Sims told The Weekend Australian.

“And let’s be clear here. We‘re not setting a price that says you’ve got to sell it for X dollars a gigajoule. What we’re doing — and what we’ve recommended — is that you undertake to sell gas at the alternative price you could have got by flogging it overseas. So by definition you should be indifferent.”

“The only reason you wouldn’t be indifferent is you can actually sell it domestically for more than the alternative and you’d rather do that,” the ACCC chief said.

“I understand why they’d rather do that but I think it’s fair for the government to say, look if you can get $7 or $6 for this gas overseas then that’s what you should be getting domestically, rather than taking advantage of the fact that there’s not sufficient competition in the domestic market.”

…While current LNG netback prices are relatively low given a weaker Asian market, buyers may live to rue pushing for the price link should the market reverse in years to come, according to Credit Suisse.

Rubbish. The ACCC series is based upon Asian spot prices which have been much lower than contract consistently for the past seven years. The reason manufacturers pay more is they are either gouged straight up or yoked to the Brent oil price at a preposterous 14% slope. They’re much better off with JKM net-back which will average $6-7Gj:

The future of sustained low Asian spot prices is bright amid the huge global glut as new gas flows from Qatar, the US and Africa:

As well, export cartelier, Santos, is happy to sell to the Japanese on this metric today:

Santos has signed a binding long-term LNG supply and purchase agreement with Diamond Gas International, a subsidiary of Mitsubishi.

Under the agreement Santos will supply 1.5m tonnes of LNG from Barossa every year for ten years at a price based on the Platts Japan Korea Marker.

So why shouldn’t local buyers expect the same privilege minus the cost of liquefaction and shipping for net-back?

The funny part is, if the Morrison Government does it, it will immediately wipe out its own “gas-led recovery” with Narrabri in particular so marginal it will never go ahead. Do it!

Why now after all of these years of cartel captured policy? I suspect that the Morrison Government has finally realised that we need an industrial base to fight China.

David Llewellyn-Smith
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Comments

  1. Quote “The funny part is, if the Morrison Government does it, it will immediately wipe out its own “gas-led recovery” with Narrabri in particular so marginal it will never go ahead. Do it!”
    It will kill Narrabri and rightly so, but it will lead to a gas turbine power plant building boom.
    The coalition is so farked up with their gas recovery policy with the current regime of high gas prices and developments like Narrabri, high cost Snowy Hydro 2.0 and letting Snowy Hydro build a gas power plant (the cost of electricity production of Snowy Hydro’s gas power plant will NEVER drop below their pumped hydro white elephant), they are actually working AGAINST a gas led recovery in favor of renewables.
    I don’t know why some of the renewable developers and loud speakers like Turnbull and Cannon-Brookes are so hostile towards Scomo and Angus Taylor for its their dual policy of ‘coal and gas talk’ (that’s all it is, how long has Scomo been PM?) keeping LNP backbenches happy with the ‘talk’ but doing NOTHING for gas or coal power generation which has made Australia renewable projects so lucrative to multinational investors from all around the world.
    If the Coalition do an 180 backflip on gas prices, there will be at least 3-4 gas turbine peaking plants back on the books, plus one new combined cycle plant, and a peaking plant converted to combined cycle.
    For Australia to transition to 100% renewables – solar and wind, batteries etc. the East Coast gas price must be kept artificially high where it currently stands.

      • How will lowering the gas price keep manufacturing alive unless it drives electricity prices lower? The only way you can drive electricity prices lower is to build gas turbine power plants and that will have flow on price pressures on the renewable and coal generators. Tomago Aluminum uses mostly electricity (NSW’s largest industrial consumer of electricity). Bluescope does use a bit of gas, but the majority of the energy it uses in its steel making process comes from coal (coke) and electricity. There are food manufacturers who use gas, but they are not under the same pressures as Tomago and Bluescope as much of the food production is for domestic comsumption and are not affected by imports. Aside from that there is not much other real manufacturing left aside from some metal trades which use electricity.

    • TheLambKingMEMBER

      If the Coalition do an 180 backflip on gas prices, there will be at least 3-4 gas turbine peaking plants back on the books, plus one new combined cycle plant, and a peaking plant converted to combined cycle.

      Who will build or finance it? Gas use in the electricity market has been declining – even with the falling prices. They will be stranded assets. There is no market for this. State Governments might want to build them as political backup to cover the handful of days needed. But there is enough coal in the system to last until there are enough batteries to fill the gap as peaking devices.

      • ERM, Santos, Origin Energy all have East Coast gas plant projects which were shelved when Curtis Island kicked in.

        • TheLambKingMEMBER

          Curtis Island came on-line 5 years ago. Back then grid level batteries were un-thinkable, grid level solar has dropped about 70% in price, wind price has dropped by 40%. Project those price drops another 5 years (the time to bring a gas plant on-line) and gas will need to be much cheaper than the pre-export price to be competitive enough for someone to finance building one in todays market.

    • Gas contracts at net-back pricing will permit more nimble gas-fired power generation to be built, and this will actually have the effect of facilitating a faster growth rate for renewable power generation capacity in the coming decade

  2. “finally realised that we need an industrial base to fight China.” god i hope so!
    We should look to Israel to see how this small country with less immigration has managed to do this as Australia’s leaders seem to think it’s impossible unless we are huuuuge!