Re: Gas prices

AGL Employee

Hi @t-ellis 

 

Australia is a major exporter of natural gas; however, most of this gas is not available to the south-eastern states. It has been a difficult realisation for many that the abundant gas supplies Victoria once enjoyed are in decline. Declining production from Bass Strait’s big legacy fields has meant Victoria needs to seriously consider and prepare for alternative sources of supply.

 

Even if the supply of gas from unconventional fields in Queensland was available to the pipeline connecting them with Victoria, it would not be able to supply enough during peak winter gas demand due to the limited capacity of the pipeline. Gas supplies from the North West Shelf are not available to Victoria because there is no pipeline across the Nullarbor.

 

In addition, shortfalls in domestic supply are likely to result in higher and more volatile gas prices for Australian customers. Extreme weather events and contingency planning also contribute to increased need for gas-powered generation and energy market constraints. Increased contribution of renewable sources of energy that require time for shaping or ‘peaking’ will also add to the demand for gas-fired power generation and changing electrical supply conditions.

 

Therefore, securing gas supplies from alternative sources is required to maintain security, stability and affordability of gas supply.

 

The chances of gas returning to historical prices is slim. The reality is that the current price (about three times the historical price), will likely remain the price of gas even if this project is put in place. This is due to several factors but includes the international market and the dwindling supply. By increasing the supply of gas available, the LNG project will put a cap or ceiling on this value and in doing so, place downward pressure on the market.

 

The Gas Inquiry 2017-20 Interim Report released by the Australian Competition and Consumer Commission (ACCC) in December 2018 found suppliers expect to produce sufficient gas in the east coast to meet the expected demand in 2019, but domestic prices remain too high for many gas users.

Prices offered and agreed in mid-2018 for supply in 2019 ranged from nine dollars per GJ to 12 dollars per GJ. By August 2018, most offers to large commercial and industrial gas users were at, or above, the mid 10 dollars per GJ level, including some offers above 12 dollars per GJ.

 

When the interim report was published, ACCC Chair Rod Sims said:

“Some commercial and industrial gas users have told us that, at these prices, which are two to three times higher than historical prices, their operations are not sustainable in the medium to longer term. They are increasingly likely to relocate from the east coast or close their operations”.

 

“Gas is a raw material to production or largely irreplaceable source of energy for a diverse range of sectors such as mining, manufacturing, chemicals, agriculture and food production. Rising domestic gas prices are putting gas users which are exposed to global markets under strain, as they cannot pass on the increases in their costs.

 

“Once large manufacturers relocate or shut down their plants, they won’t come back.

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