Call for gas reservation policy on east coast of Australia as energy prices soar
Australians are facing huge jumps in their energy prices. But not every Aussie will feel the same pain thanks to an unfair policy.
Costs
Don't miss out on the headlines from Costs. Followed categories will be added to My News.
Australians are bracing themselves for higher electricity prices as the costs of coal and gas soar – but not every Aussie is facing the same pain.
While rising prices are partly being blamed on the war in Ukraine, which has sent international gas and coal prices surging, some may be confused why Australians are also having to pay more.
Australia is the world’s largest liquefied natural gas (LNG) exporter which sends 80 million tonnes of gas overseas a year.
Despite this, the Australian Energy Regulator (AER) will pass on hefty increases to the benchmark power price from July, which will see prices rise up to 18.3 per cent in NSW, 12.6 per cent in Queensland and 9.5 per cent in South Australia. Some consumers could be slugged with an extra $250 a year.
Experts blame the failure to create a gas reservation – setting aside gas for use in Australia – when large LNG export projects were approved in Queensland. This has left Australians on the east coast more vulnerable to price rises overseas.
It’s a different story in Western Australia, where gas is much cheaper, partly because the state has a gas reservation policy, which dictates that supply equivalent to around 15 per cent of the gas produced for export must be provided for local consumers.
This has resulted in a significant difference in gas prices between east and west coasts.
On the east coast, spot prices for gas have risen by a staggering 529 per cent across two years, from an average of $4.83 a gigajoule on May 1, 2020, to around $30.38 this month, Gas Trading Australia data shows.
In comparison, price increases in WA have been more modest, rising by around 160 per cent, from an average $2.13 a gigajoule on May 1, 2020, to around $5.55 forecast for June 2022.
Gas Trading general manager Allan McDougall said the increase in WA’s prices was also not due to rising prices overseas.
“It’s primarily due to the expiry of long term contracts with North West Shelf Gas and reduced production from that facility,” he said.
Mr McDougall said he only expected prices to increase slightly from the current $5.50 a gigajoule in WA.
A graph in the Australian Energy Market Operator (AEMO) Gas Statement of Opportunities March 2022 highlights the huge amount of Australian gas that is shipped overseas compared to what is used in the country.
Stream more finance news live & on demand with Flash. 25+ news channels in 1 place. New to Flash? Try 1 month free. Offer ends 31 October, 2022 >
Institute for Energy Economics and Financial Analysis (IEEFA) energy finance analyst Bruce Robertson said gas prices were rising despite the fact that demand for gas in Australia was falling. He said prices would continue to rise in coming months, putting many businesses at risk.
“A whole lot of gas-reliant industry will go broke in the next 12 months,” he told news.com.au.
Mr Robertson said there was no reason why Australians living on the east coast could not have access to more reasonably priced gas.
“This is highlighting once again our governments of both persuasions failing us,” Mr Robertson told news.com.au.
He said allowing companies to extract more gas, as has been suggested by some, had not worked to bring down prices.
“It won’t work because you have just a few companies that control the market and that set the price,” he said.
While the Morrison government’s “big stick” reforms did initially bring prices down, the war in Ukraine had seen the end of this.
“They’ve now decided to price gouge again, putting the prices up very high,” Mr Robertson said.
“Naturally Australia should have cheaper prices because the industry is heavily subsidised and we’ve opened new areas for exploration, and yet still the gas industry returns the favour by charging Australians too much for gas.
“It will never end until we have introduced a domestic gas reservation policy just like Western Australia.”
Aussie businesses at risk
Weston Energy, a natural gas wholesaler and distributor, drew attention to the issue amid its collapse this month.
Weston had contracts to supply gas to more than 400 companies and government agencies along the east coast including in NSW, ACT, South Australia, Victoria and Queensland.
However, it was forced to close after an unprecedented rise in coal and gas prices over the last month.
Weston Energy managing director Garbis Simonian said the closure of several coal-fired power plants had dramatically increased demand for gas-fired power at the same time as the war in Ukraine had seen international gas prices surge.
This meant Weston was not able to fulfil its contracts with businesses to supply gas at the price it had previously agreed to.
Mr Simonian blamed the situation on a “real policy failure” in Australia.
“The fact that Australia is the world’s largest exporter of coal and gas and yet our domestic prices are at unprecedented high levels, highlights real policy failure,” Mr Simonian said in a statement.
“Rapidly rising energy prices have put hundreds of Australian businesses, and thousands of jobs at risk.
“The circumstances now buffeting Australian energy markets have been foreseen for some time, but little has been done to prepare Australia’s energy producers and users for this impact.”
‘It is our gas – it doesn’t belong to multinationals’
Outgoing Independent senator for South Australia Rex Patrick has been a vocal critic of the gas situation in Australia and was told by the Morrison government that options for the establishment of a national gas reservation scheme would be discussed with states and territories as part of a review to be completed by February 2021.
He said he had negotiated with the government for the review in exchange for his support of the government’s Stage 3 tax cuts.
A letter dated July 2019 from then-finance minister Mathias Cormann, and seen by news.com.au, confirmed the government said it would bring forward the review of the Australian Domestic Gas Security Mechanism, which gives the resources minister the power to restrict gas exports in the event of a critical shortage of gas, to ensure it was fit for purpose and delivered as low prices as possible.
Mr Patrick said other aspects of the review were delivered, including an examination of prices, but exploration of a possible gas reservation only went to consultation and the review on this did not seem to have been completed.
“This is Australian citizens’ gas and it is a betrayal of government to permit that gas to go offshore and to drive our manufacturers out of business and drive up the cost of living for our consumers,” he told news.com.au.
While rising energy prices are being blamed on international factors, Mr Patrick said the government had failed to put in place a mechanism to insulate Australia from those price rises.
“We have more gas than you can poke a stick at – the problem is most of it is exported at world market prices and that leads to Australians paying a lot more for gas than they should.
“It is our gas; it doesn’t belong to these multinationals. We grant them a licence to export this finite resource and in return they, and the government, they in turn need to meet their social licence obligations.”
Mr Patrick said it was the Labor government under prime ministers Julia Gillard and Kevin Rudd that had failed to put a gas reservation in place when six LNG trains were approved in Gladstone, and he has now called on the new Labor government to fix the problem and implement a reservation scheme similar to Western Australia’s.
“This is a Labor government-initiated crisis and they have an obligation to do something about it now,” Mr Patrick said.
‘A complex issue’
Former chair of the Australian Competition and Consumer Commission (ACCC) Rod Sims highlighted the complexity of Australia’s gas market during questioning at the Senate Economics Legislation Committee on February 17.
Mr Sims said the government’s “big-stick” legislation did appear to have worked to some extent, although Australians were still paying more.
“If you look at countries that don’t produce much gas, you see that their prices are way higher than ours,” he told the committee.
“If you look at countries that are massive gas exporters, as we are, you see that probably our prices are a bit high.”
Mr Sims said he thought companies had realised they could not keep putting prices in Australia to match those overseas as the government could take action.
However, he noted that prior to the LNG producers coming online, manufacturers had been paying around $4 a gigajoule for gas, but this had risen to $10 or $11 earlier this year.
“Many of them can’t handle that. This is a really complex issue.”
Originally published as Call for gas reservation policy on east coast of Australia as energy prices soar
‘Punching itself in the face’: RBA cops heat
A former federal treasurer and current Labor Party national president has come out swinging against the Reserve Bank, saying the RBA is ‘punching itself in the face’.
‘Punching itself in the face’: RBA cops heat
A former federal treasurer and current Labor Party national president has come out swinging against the Reserve Bank, saying the RBA is ‘punching itself in the face’.