Buyers inflame ‘moral hazard’ for east coast gas: Credit Suisse

The refusal by some gas users on Australia’s east coast to take ­ownership of their failure to hunt for supplies has exacerbated a ‘moral hazard’ in the sector, Credit Suisse said.

The refusal by some gas users on Australia’s east coast to take ­ownership of their failure to hunt for supplies has exacerbated a “moral hazard” in the sector, Credit Suisse said.

Shell this week criticised the Albanese government’s planned changes to the LNG export trigger, saying they would make matters worse for the sector and hit back at the way big users had campaigned on the Australian Domestic Gas Security Mechanism (ADGSM).

Credit Suisse said many gas buyers had refused to take accountability for their own procurement, refusing to lock in prices when it was affordable at rates of less than $10 a gigajoule two years ago.

“The moral hazard in the east coast gas market is creating a feedback spiral leading to more interventions,” Credit Suisse analyst Saul Kavonic said.

“The ADGSM has seen buyers pursue 12 months’ contracts under pressure from the annual ADGSM trigger, rather than long-term contracts that secure supply and more supply development.”

The three LNG plants – owned by Santos, Shell and Origin Energy – are currently controlled by the ADGSM, which gives the ­government power to halt LNG exports if a domestic shortfall year has been declared.

However, since coming to power, Labor has criticised the ADGSM, or gas trigger, as an unwieldy tool that takes too long to put in place, as the government must make its shortfall declaration before November prior to the following calendar year.

Reforms to the mechanism, due to start on April 1, means a ­decision to activate the trigger will be reviewed every three months rather than annually.

The gas industry is on edge as Labor moves to revamp the gas ­industry’s code of conduct to cut prices, while unions say the ­government has not done enough to bring down energy costs for manufacturers. A shortage of gas on Australia’s east coast this year is still possible, despite an improvement in the outlook for the market, the competition regulator warned in January, although LNG exporters have sufficient supplies to plug any gaps.