Instead, each CSG development should be considered on a case-by-case basis, considering environmental and social concerns as well as the costs and benefits to the domestic gas market and to industrial users in particular.
However, as the moratoriums are complex, state-based rules, the ACCC cannot force them to be removed/
“More supply, new suppliers and an increased diversity of supply sources are crucial for the future competitiveness of, and pricing in, the gas market,” ACCC chairman Rod Sims said.
The inquiry into the competitiveness of wholesale gas prices in eastern and southern Australia, sparked by the unprecedented change in the east coast gas market over the last four years with the development of the Gladstone LNG plants has delivered a “triple whammy” to energy customers, particularly industrial gas users, Sims said.
“The triple whammy of the introduction of LNG and with it exposure to international gas pricing, a fall in oil prices leading to a downturn in exploration and new development, and regulatory uncertainty and exploration moratoria, has created an increasingly complex environment for many gas market participants,” Sims said.
Gas, which can travel all over the east coast market, can now be sent to Queensland for export into higher prices markets, and the sudden spike in demand has driven up prices.
With an uncertain supply outlook, particularly post-2025, the ACCC found meeting future domestic and LNG demand will require extensive development of undeveloped gas reserves and resources
Sufficient gas is forecast to be produced in the east coast gas market to meet domestic demand and existing LNG contract commitments until at least 2025, but there is uncertainty over the timing of some developments, particularly due to low oil prices.
“Some suppliers have taken advantage of this supply uncertainty and potential shortfalls to increase prices and implement more restrictive non-price terms and conditions,” Sims said.
The report makes a number of recommendations that the COAG Energy Council and state and territory governments can consider to alleviate gas market issues, particularly for industrial users, including scrapping exploration bans; revisiting the regulatory coverage of pipelines, increasing the ability for pipelines with market power to be regulated, and ensuring the market is more transparent and consistent.
“A $2 per gigajoule increase in the wholesale price of gas could increase residential bills by 5% in New South Wales and 11% in Victoria. The difference between a competitive market and an uncompetitive market in south eastern Australia could be as much as $4 a gigajoule for wholesale gas. A competitive market requires more gas supply and more sources of gas supply,” Sims said.
The ACCC concluded that the regime regulating gas pipelines is not fit for purpose and pipeline pricing is largely unconstrained by either the threat of regulation or effective competition, and that while the pipeline sector is responding to the changing market dynamics and offering new services, pricing based on significant pipeline market power is prevalent.
“Pipeline pricing exacerbates the effect of supply tightness on wholesale gas prices. There are currently very few constraints on monopoly pricing by pipeline operators,” Sims said.
“Compounding supply tightness and the effects of pipeline pricing, is the effect of an opaque and illiquid east coast gas market. Confidential bilateral negotiations remain the norm for both gas supply and transportation contracts. The lack of consistent, publicly available data on the sector is an impediment to participants, investors, and policy makers,” Sims said.
The ACCC will also further consider some practices in the market, including the joint marketing of the Gippsland Basin Joint Venture between Esso and BHP Billiton.
The report also rejected suggestions that the east coast of Australia set aside a certain proportion of gas for domestic uses as happens in Western Australia, saying that while in the short term that might reduce prices for domestic users, in the long term it would weaken the incentives for exploration.
The ACCC conducted in excess of 30 private hearings and considered over 73,000 individual documents.
The Australian Energy Market Commission is also conducting a review into the east coast wholesale gas market and pipeline framework, and that should be released next month.
Resources Minister Josh Frydenberg has already discussed the ACCC report with state Premiers, and has pledged to respond to the recommendations with action within 12 months.
