Gas suppliers accuse industry of lobbying for government intervention
Energy giant Shell has accused manufacturers of agitating for federal government intervention in the gas market.
Tensions have erupted between energy producers and big industrial users over the east coast’s dysfunctional gas market, with energy giant Shell accusing manufacturers of agitating for federal government intervention during contract negotiations in a bid to lower prices.
The blame game between suppliers and buyers of gas on the eastern seaboard has been simmering, with high prices and a supply shortfall leading the competition regulator to warn industry will be forced to shut down operations if the situation persists.
Shell, one of Australia’s largest gas producers, said large manufacturers are including the idea of government intervention in their gas tenders to try and elicit cheaper gas deals despite commercial deals still being struck and no indication of a shortfall in the market.
“We observe that several commercial and industrial customers continue to agitate for government intervention,” Shell Australia chair Zoe Yujnovich told the Credit Suisse Australian Energy conference in Sydney yesterday, without naming any companies.
“Indeed the term-sheet that accompanies their supply negotiations these days seems to have an inked-in tactic to use government pressure to leverage a better deal.”
The nation’s top producers including Shell and Santos, are mounting a fightback after being battered for several years by their customers and governments with prices soaring to about three times historic levels due to tight supply and Queensland LNG exports.
ACCC chairman Rod Sims has called for producers to consider cutting favourable deals for manufacturers to ensure their livelihood, while big users like Qenos have called for Resources Minister Matt Canavan to trigger emergency government mechanisms to free up Queensland gas otherwise destined for export.
Mr Canavan said he was concerned the decrease in global LNG prices had not yet been reflected in Australian domestic gas prices.
“There is a reason for that, we don’t directly benefit from the affordable American gas flooding world markets, but I still expect through trading our prices should track down if global prices stay as low as they are,” he said.
The minister is negotiating with Centre Alliance about measures to reduce gas prices as the government attempts to win the minor party’s support for its $158 billion personal income tax cuts package.
Senator Canavan saidthe government was continually monitoring the domestic gas situation. “We’ve got quarterly reporting of the price situation. The ACCC has access to both the offers and the negotiated prices that occur on a contractual basis,” he said. “We’ve been committed to transparency so I’m happy to explore any other things we could do.”
Some large gas users were still enjoying legacy gas prices below market rates. “There is a case to be made it’s working almost too well in the favour of those commercial and industrial customers who still hold legacy contracts for gas supply well below market rates, contracts that have cost us dearly for years,” Ms Yujnovich said. “Yet it is not our style to approach government to ‘save’ us: we understand the sanctity of contracts but we still find some are out there lobbying against us.”
Gas producers should not be called on to cross-subsidise buyers in another industry, Shell said.
“I don’t get many calls from large commercial and industrial customers wanting to invest in upstream projects to participate across the value chain. I suspect that’s because they know the truth of the matter that the ‘risk versus return’ profile of coal seam gas and capital intensity set against price and production volatility may not be to their liking.”
Still, the Australian Workers Union said manufacturers and workers continue to struggle due to elevated gas prices. “The crisis is here now and you are seeing these closures happening around the country,” AWU deputy secretary Misha Zelinsky said. Queensland LNG export projects led by Shell, Santos and Origin Energy have so far avoided the Australian Domestic Gas Security Mechanism being triggered after agreeing to provide reasonably priced gas to fill any short-term shortages.
Santos chief Kevin Gallagher said the government must avoid embracing interventionist policy.
“There is no history that tells us that government intervention works,” he said. “You will just get the same outcome that you always get when governments intervene in free markets: eventually you’ll pay the price for it, and that will be jobs, it will be higher gas prices, it will be less gas to market.”