Chances are you’re paying too much for gas because producers are shafting their customers, according to the ACCC.
And the consumer watchdog would know.
They took a peek under the stovetop to work out how gas gets from the fields to your kitchen – and what they found wasn’t pretty.
In fact, according to ACCC chair Rod Sims, producers are setting their prices based on politics rather than the laws of supply and demand, meaning all of us are paying more than we should.
“Consumers have a right to be upset,” Mr Sims told The New Daily.
“Given how much gas Australia’s got, they’re paying too much for it.”
For the first time ever, the ACCC on Tuesday published analysis of gas producer pricing strategies after the regulator forced the companies to hand over certain documents.
And the findings reaffirmed Mr Sims’ view that the gas market is broken.
Mr Sims said that unlike in other industries, gas suppliers aren’t deciding prices based on demand and then beating competitors to the punch.
Instead, they’re looking at overseas prices and selling here at a mark-up.
“They’re making judgments about how much they can get away with … [not] about what their competitors are offering,” Mr Sims said.
Gas prices fell last year as international demand fluctuated during the pandemic, bringing average prices down from over $10 per gigajoule to just under $8.
But they should have fallen much lower, according to the ACCC.
This is because the price that producers expect to receive for exporting gas (known as an LNG netback) is still about $1 per gigajoule lower than domestic prices, which means overseas importers are paying less for Australian gas than Australians.
The good news is, the gap between what exporters and local consumers pay shrunk in step with falling global prices last year.
But Mr Sims isn’t confident that this trend will continue unless producers are held to account.
“The only reason it came down is because of public scrutiny,” he said.
“Absent scrutiny, I think the gap would widen.”
Politics over competition: How the sausage is made
Basing prices on politics rather than competition is not how a market is supposed to operate.
Ideally, competitive pressures would drive prices to some sort of equilibrium.
But the ACCC’s latest report reveals producers in Queensland, where most of Australia’s gas is sourced, planned for domestic prices to be higher than their international equivalents from the outset.
They were much more concerned about the political appetite for higher prices than whether a competitor might undercut them.
“[One producer noted] there appeared to be a ‘natural psychological ceiling’ for prices in Queensland of around $10/GJ,” the report said.
“The ACCC has observed only limited references by suppliers to the pricing behaviour of competitors.”
It’s all quite worrying, given the federal government has talked up gas as an important transition fuel in the fight against carbon emissions.
After all, if gas is going to be our ticket to net zero, as Energy Minister Angus Taylor has said, we’ll want to make sure we’re not overpaying.
So, what can we do about the problem?
Mr Sims said the key issue is there aren’t enough gas suppliers.
But solving that is tricky, because it’s difficult to get into the gas production game and decisions made about a decade ago have locked in poor competition around Australia’s massive gas fields.
Fast forward to today and the government is currently writing a voluntary code to encourage more competitive pricing strategies across eastern markets, which the ACCC welcomes.
But Mr Sims said he has no idea whether it will actually work.
Perhaps unsurprisingly, government ministers have defended their policies and claimed publicly that they are putting the interests of consumers above those of exporters.
Mr Taylor said on Tuesday that a new agreement with the Commonwealth would force gas producers to supply domestic customers first.
“Gas exporters are likely to produce 21 petajoules of gas above their contractual requirements in 2021. Under the government’s renewed heads of agreement, this gas must be first offered to the domestic market on competitive market terms,” he said in a statement.
Meanwhile, Treasurer Josh Frydenberg said in a separate statement that the government is willing to bring out the regulatory stick to shrink the gap between international and domestic prices.
“We have set firm expectations for gas producers to put Australians first and we will continue to work closely with the ACCC to ensure that is the case,” Mr Frydenberg said.