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This is the July 2020 interim report of the Australian Competition and Consumer Commission’s (ACCC’s) inquiry into gas supply in Australia (the Inquiry).

The focus of our mid-year report has typically been on the forecast supply outlook for the East Coast Gas Market for the following calendar year. This year we have also considered the effects on the East Coast Gas Market that have arisen as a result of both the COVID-19 pandemic and the significant falls in oil and LNG prices.

The impacts of these twin shocks have been felt at all levels of the supply chain and brought into clearer focus the pressure points and areas of dysfunction present in the market. The effects we are seeing in the East Coast Gas Market increasingly indicate a limited degree of competition in key parts of the supply chain. The cumulative effect of dysfunction at the production, commodity gas sales and pricing, and gas transportation levels of the market is significantly affecting gas users at the end of the supply chain.

Many commercial and industrial (C&I) users were already struggling as a result of the increases in domestic gas prices that have occurred over the last five to ten years. For some, COVID-19 has brought new opportunities. Some manufacturers, for example, have been able to change their operations to produce essential products, such as hospital grade hand sanitiser, while others producing essential goods, such as toilet paper and food products, significantly increased output during the height of the pandemic.

While some larger C&I users have reported a softening in the prices offered under gas contracts since our last report, they are sceptical that this will continue given the tight demand-supply balance and what they see as a limited degree of competition among suppliers. They also continue to be frustrated by the fact that domestic prices have not followed LNG netback prices down, what they see as onerous non-price terms and conditions, including high take or pay obligations, and a more general imbalance in bargaining power when negotiating with producers and retailers.

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