Gas producers heed price warning amid export curb threat

East coast gas producers are offering gas to commercial buyers at prices much lower than they were earlier this year.

The ACCC says ‘there has been a steady decline in the level of price offers’.

East coast gas producers are offering gas to commercial buyers at less than $10 a gigajoule — substantially lower than prices earlier this year — despite an expected supply shortage that has Malcolm Turnbull considering imposing export controls.

In the first look at the state of the domestic gas contract market using the Australian Competition & Consumer Competition’s special powers to compulsorily acquire confidential information, the watchdog yesterday revealed that offers this financial year have largely been at or below $10 per gigajoule.

This is well up on both traditional prices of $3 to $4 per gigajoule and a new ACCC goal of $8 in the southern states.

But it is down on the $10 to $16 range ACCC chairman Rod Sims yesterday said most 2017 contract offers had been priced at, indicating the producers are heeding Mr Turnbull’s warning to offer reasonably priced supply or face intervention.

“Following a peak of unfulfilled price offers in early 2017, there has been a steady decline in the level of price offers made over the course of the year,” the ACCC said yesterday on the last page of its first report since being commissioned to look into the market six months ago.

“Most recent unfulfilled offers have been made at or below $10 per gigajoule.”

The report reveals the recent fall came after a period from March to June where contract offers for large commercial players in 2018 had surged to as high as $16.36 and had not come in under $10. This was a big jump from offers of $6 to $10 throughout 2016, prompting Mr Sims’ observation last week that the market had become more dire since a previous ACCC report in March last year.

Yesterday’s ACCC report noted that producers had publicly stated that contract gas prices had recently fallen.

“While this might indicate some increased participation or competition in supplying customers, the ACCC notes that this coincides with the ACCC seeking information from suppliers as part of this inquiry, as well as the government’s steps to implement policy measures to address concerns with the gas market,” the report said.

The ACCC believed an appropriate benchmark price for east coast gas users to pay, based on the equivalent that Queensland’s big exporters could get selling the gas to export spot markets, was $7.77 a gigajoule in southern states and $5.87 in Queensland.

But the recent offers of at or below $10 line up with a directive given to the industry by Energy Minister Josh Frydenberg in July, three months after Mr Turnbull revealed the government was looking at export restrictions. At the time, Mr Frydenberg told The Australian/Melbourne Institute’s Economic and Social Outlook conference that prices of $16 would break businesses, setting a goal of $8 to $10 for new contracts.

Mr Sims’s new benchmark price is based on the netback of expected near-term LNG spot prices, which are at historic lows. This is more relevant than LNG contract prices, which are higher, because spot prices are what Queensland’s gas exporters will get for their uncontracted gas if they don’t sell it domestically.