Users hit back in Australian domestic gas price war

Big energy users have slammed gas price claims made by producers in the latest escalation of tensions as the industry braces for intervention by the Albanese government.

Labor has indicated it will make an emergency intervention in the market to ease cost woes for gas-reliant manufacturers.

Big energy users have slammed producers for attempting to “hoodwink” industry with claims over affordable domestic gas prices, in the latest escalation of tensions as the Albanese government prepares an intervention in the market.

The Australian Production and Petroleum Exploration Association, representing large gas producers, said domestic prices for the third quarter sit between $8.50 a gigajoule and $13.10GJ, well below international prices.

However, the Energy Users Association of Australia — which counts BlueScope and Orica among its members — said prices being offered to its members for future contracts were over double those levels at rates between $30-$35GJ.

“Forget about some esoteric ‘realised price’ that is designed to muddy the waters. The real prices being offered today to our members are between $30-35/GJ. These are the prices we have seen in contracts executed in the last two weeks, that is fact,” EUAA chief executive Andrew Richards said.

“We have also seen expression of interest documents released by gas suppliers just this week, which ironically comply with the voluntary gas industry code of conduct, that sets price at the LNG netback. The latest ACCC calculation has this averaging $46.95/GJ in 2023.”

The energy users have been calling for a gas cap of $10GJ for domestic prices.

That compares with spot prices of $23GJ in Queensland and LNG netback prices, reflecting LNG spot prices to North Asia less the cost of transport and liquefaction, at $44GJ.

“We find it interesting that the APPEA media statement makes references to contracts executed in 2021 for 2022 supply with prices between $6-9/GJ. Obviously the gas producers were happy with the margin on these sales yet somehow a short-term domestic price cap of $10/GJ is unacceptable,” the EUAA said.

Industry and Science Minister Ed Husic said on Thursday that gas contracts offered by LNG exporters were “just as high if not higher” despite the federal government’s negotiated heads of agreement signed in September to drive down prices.

APPEA responded by saying it was irresponsible for a federal cabinet minister responsible for business policy to demonise and misrepresent the gas industry.

Consultancy EnergyQuest has pointed to the central role gas played during last winter’s energy crisis and questioned the consequences of a $10/GJ cap.

It was also unclear how a cap might work across retail and wholesale markets and whether it would apply to the three Queensland LNG producers or east coast suppliers more broadly, it noted.

CBA said the Albanese government is better off slugging energy companies with a tax measure rather than a price cap should it stage an intervention to cut domestic gas tariffs.

The bank said a price cap would likely delay or even cancel several mooted LNG import plants, which are needed to meet a supply gap.

“Higher taxes have also been proposed. As far as immediate interventionist options go, we think there’s more merit in a tax than a domestic price cap to help re‑direct funds to the most vulnerable households and businesses,” CBA analyst Vivek Dhar said.

“The medium term issue of reducing the incentive of new east‑coast gas supply though still remains. Our major worry is that intervention, particularly some form of a price cap, will further delay or even cancel an LNG import terminal in east‑coast Australia.”

Domestic reservation may also be an option worth exploring, CBA added, though new gas would only hit the market in 2025 or 2026 given lead times for production.

The industry’s mantra that prices will drop if they are allowed to deliver more supplies into the market could also come unstuck.

“It’s worth highlighting that more local supply may not necessarily mean lower prices. That’s because the opportunity cost for gas not consumed by the east‑coast market is the international gas market, where dynamics in the LNG market are setting the gas price,” Mr Dhar said.

The competition regulator has been tasked by Labor with finding a solution to the gas squeeze, including a focus on easing high prices.

Treasurer Jim Chalmers said while he was a “reluctant intervener”, there was now a strong case for action to ease a price crunch, in part driven by international factors including Russia’s invasion of Ukraine.

The intervention may provoke a fight from major energy companies nervous the move could undermine multi-decade LNG spending worth over $70bn and hike sovereign risk for international investors that control the bulk of Queensland’s gas supply.

Originally published as Users hit back in Australian domestic gas price war