Big manufacturers still concerned over high east coast gas prices
The ACCC’s latest gas report may spark a renewed push by users for changes to domestic gas pricing methodology
Big energy users have backed a review of the ACCC’s LNG netback methodology as they push for the introduction of a new pricing mechanism to ease the cost of domestic gas on the east coast.
Frustration over gas prices has grown after a deal between Scott Morrison and big LNG exporters in January avoided formal price controls, which some big manufacturers had sought but were strenuously resisted by the LNG industry.
The Australian Competition & Consumer Commission announced a review of the pricing benchmark on Tuesday, providing ammunition for industrial users as they push for a change in the benchmark method for east coast prices to be included in a code of conduct for the gas industry due by the end of February.
They want changes to the competition regulator’s LNG netback formula — effectively the price of LNG shipped overseas less processing and shipping costs.
Instead, they have called for the removal of an implicit cost premium built in to pay back the cost of the giant LNG export plants used to ship gas to Asian buyers, calculating the cost of LNG capital accounts for $2-$3 a gigajoule in the final price that domestic users pay for gas.
“The ACCC’s current netback methodology only excludes recovery of short-term export-related costs, and domestic gas users fear this leaves them exposed to the longer-term costs of LNG export infrastructure they don’t use or benefit from,” a joint statement by a group of major gas users said.
“Our own immediate focus is the joint work of our organisations on behalf of gas users to negotiate with gas suppliers on a code of conduct that we all hope will make a positive contribution and improve outcomes for domestic gas users.” Big gas consumers have been encouraged by the re-entry of Josh Frydenberg into the gas debate, with the Treasurer saying the government had set “firm expectations for gas producers to put Australians first” and flagged further reforms in the sector if domestic prices did not come down.
Manufacturers say they can’t find gas on a contracted basis for less than $8-$10 a gigajoule, more than double historic levels.
The gas users collective comprises lobby groups the Ai Group, Chemistry Australia, Manufacturing Australia and Energy Users Association of Australia.
APPEA, which represents the nation’s big gas producers, hit back at moves by manufacturers and pointed to recent data showing prices in the domestic gas market “remain well below” LNG prices received by those same companies in their major export markets.
“The industry will welcome the opportunity to again discuss the differences between spot gas markets and longer-term contract markets, and the factors that mean different price outcomes are observed in those markets,” APPEA chief executive Andrew McConville said.
“As the ACCC has itself noted on numerous occasions, the LNG spot netback price is not setting a level of gas prices in the east coast gas market.”