In April 2015 the Minister for Small Business requested the Australian Competition & Consumer Commission (ACCC) to inquire as to the competitiveness of the wholesale gas market in Eastern and Southern Australia. This was prompted by concerns surrounding increasing wholesale gas prices, the impact of the new liquefied natural gas (LNG) processing facilities in Queensland and potential barriers to the development of additional sources of gas.
On 21st April, the Australian Competition & Consumer Commission (ACCC) released its finalised report. This comes shortly after release of the Australian Energy Market Commission’s (AEMC) Stage 2 East Coast Wholesale Gas Market and Pipeline Frameworks Review, with both reports raising a number of common issues.
The ACCC’s findings were that:
- Industrial users have had difficulty renewing their Gas Supply Agreements in terms of both duration and price as liquefied natural gas (LNG) has mopped up domestic gas supply and with contracts being described as offered on a ‘take it or leave it’ basis. Circumstances have improved more recently but this problem still persists.
- Difficulty in renewing gas contracts has been exacerbated by alleged monopoly pricing practices by certain pipeliners with the ACCC describing the regulatory regime around pipelining in its press release as “not fit for purpose”.
- The level of transparency in the wholesale gas market is too low both for reserves information and for pricing information with this acting to strengthen the negotiating position of sellers.
- The low oil price is supressing upstream investment which is also being neutered by restrictions on coal seam gas (CSG) exploration in many states.
- The current dynamic is for increasing demand, volatile pricing due to oil indexation and falling upstream investment, all of which means continuing uncertainty for both investors and consumers.
- Future price dynamics in southern states will differ from those in Queensland dependent upon the availability of gas supplies in the southern states. It is not as simple as LNG export netback pricing applying throughout the east coast market. How prices on the rest of the east coast differ from those in Queensland is unclear.
- For upstream production, the ACCC opposes any prospective gas reservation policies and also opposes blanket moratoria on CSG production and believes that new CSG developments should be considered on a case by case basis.
- Pipeliners’ current commercial practices are making the renewal of Gas Supply Agreements difficult for consumers and in some cases hindering up stream investment by producers. Only 20% of pipelines are regulated and the regulation is not effective enough. Access regime regulation and the pipeline coverage criteria should be strengthened.
- The Australian Energy Market Operator (AEMO) should publish LNG export netback prices at the Wallumbilla hub and potentially also prices paid to producers.
- Mandatory auctioning of contracted but un-nominated pipeline capacity should be introduced.
The ACCC’s inquiry is one of two inquiries currently underway, with the AEMC publishing its East Cost Pipeline and Framework Review draft final report in December. Whilst the AEMC review focussed on the design of the wholesale gas market and gas transportation arrangements and did not include any assessment of competition the two reviews came to similar conclusions regarding the lack of transparency in wholesale gas pricing.
The ACCC report will be considered by COAG at its next meeting.
For more information, click here to read the Inquiry into the east coast gas market or click here to read the media release on the Inquiry.