This is the fifth interim report of the Australian Competition and Consumer Commission’s (ACCC) inquiry into gas supply arrangements in Australia (the Inquiry). The ACCC has maintained its focus on the operation of the East Coast Gas Market, where there continue to be both immediate and longer-term concerns.
In the July 2018 report, the ACCC reported on the gas supply outlook in the East Coast Gas Market for 2019. The ACCC found that there was unlikely to be a gas supply shortfall in 2019 based on the supply forecasts from producers and domestic demand forecasts from the Australian Energy Market Operator (AEMO). The ACCC also found that the Queensland LNG producers were expecting to have gas in excess of their contractual requirements, which they could sell domestically.
The ACCC also observed that although domestic prices converged with expected LNG netback prices at Wallumbilla for 2019, they remained at levels that threatened the long-term viability of many commercial and industrial (C&I) gas users.
While there have been some minor revisions of gas supply forecasts by producers, the risk of a gas supply shortfall in 2019 remains largely unchanged. Sufficient gas is expected to be produced in the East Coast Gas Market to meet expected export and domestic demand.
Despite this, domestic gas commodity prices have continued to increase in line with export parity prices. By August 2018, most offers were priced at, or above, the mid-$10/GJ level. These prices are lower than those that were observed in 2017. However, following a significant upward shift in gas prices over the past few years, many C&I gas users are now facing very challenging long-term investment decisions. It appears increasingly likely that some C&I gas users will relocate from the east coast or close their operations.
There are still constraints impeding the efficient flow of gas across the east coast. Current pipeline tariffs remain too high. Measures to address the monopoly pricing by pipeline operators have commenced, but are not yet in full effect. While it is too early to assess the impact of these measures on the market, evidence is beginning to emerge that these reforms are improving price discovery and putting downward pressure on prices for pipeline services. However, some further refinement of the information disclosure requirements, and greater scrutiny of the information published by pipeline operators pursuant to those requirements, may be necessary.