Finance Finance News Gas moves too little, too slow to bring down prices, critics say

Gas moves too little, too slow to bring down prices, critics say

The government will investigate a reserve scheme for domestic gas, but won't decide anything until February 2021.
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The Morrison government’s attempts to bring down gas prices will have no benefit for consumers until 2021 – at the earliest – according to the government’s announcement.

The government has unveiled a set of proposals that it claims will bring down soaring gas prices and secure supply for domestic customers.

The proposals include establishing a national gas reserve – a scheme that would quarantine an assured amount of gas for domestic customers, similar to a long-running scheme in Western Australia that reserves 15 per cent of its supply.

It will also bring forward a review of the so-called Australian Domestic Gas Security Mechanism (ADGSM) – a regulatory tool the government can trigger to force gas producers to ensure enough supply for the domestic market.

However, while the government will investigate a reserve scheme for domestic gas, it won’t decide on any options until February 2021 at the earliest.

But one analyst told The New Daily, the problem of high gas prices in the southern states of Australia has little to do with supply, and more to do with prices being kept deliberately high by the gas companies.

Bruce Robertson, an investment analyst with the Institute for Energy Economics and Financial Analysis (IEEFA), said gas supply on the east coast of Australia has tripled since 2014, yet gas prices had also tripled.

“If a true market for gas existed on the east coast of Australia, then more supply should mean lower prices,” Mr Robertson said.

“But it hasn’t so far.”

And for any reserve scheme to work, the government must also nominate the price it wanted to achieve from that scheme.

“While the Western Australia gas reserve doesn’t have a stated price, it does have an ‘implicit price target’,” Mr Robertson said.

“There’s no mention of a price in the [government] announcement, and the problem in the market is one of price, not of supply.”

While the Australian Energy Market Operator (AEMO) quotes gas at $9.20 a gigajoule in Victoria, the price in Western Australia ranges from $5 to $7.

Mr Robertson said as any reserve policy would also only cover new gas fields, it would “achieve precisely nothing”.

“To be effective, a domestic gas reserve must reserve more than the domestic market consumes,” he said.

“Surplus production forces prices lower. This cannot realistically be obtained from new gas fields.”

Shadow Minister for Energy Mark Butler said consumers needed relief from high gas prices now, not in 18 months or two years.

“Today’s announcement about a gas policy is essentially an announcement to have a policy – not this year, not even next year, but at best the year after next,” Mr Butler said.

“It’s just not good enough after suffering through the worst energy crisis Australia has seen since the mid-1970s.”

Labor has been advocating for a domestic gas reserve since 2015.

Mr Butler last week claimed average annual wholesale prices had risen 262 per cent in Victoria, 179 per cent in South Australia, 152 per cent in NSW, 142 per cent in Tasmania and 53 per cent in Queensland since 2015, using data from AEMO.

Labor had an unlikely ally in Innes Willox, the chief executive of industry body Ai Group.

Mr Willox said while the announcement acknowledged the “dire situation” facing gas consumers, the government needed to take more immediate action to bring down prices.

“The gas price situation in eastern Australia is serious and impacting industry competitiveness and electricity prices, and further action is necessary and urgent,” he said.

A reserve scheme, he noted, would take years to deliver results and would not replace “the need for more immediate measures, particularly given the vulnerability of gas-intensive industry”.

The gas producers warned any push to quarantine a portion of the fuel for Australian use could drive prices even higher.

“While governments may seek to intervene in markets for political purposes, there should be no illusion that intervention is without costs – not least of which that sovereign risk can adversely affect confidence in the sector,” Australian Petroleum Production and Exploration Association chief executive Andrew McConville said.

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