Gas users push Angus Taylor and Keith Pitt for pricing changes
Top domestic gas users have used a high-level “code of conduct” meeting to push for a change in the benchmark method for east coast prices.
Top domestic gas users have used a high-level “code of conduct” meeting to push for a change in the benchmark method for east coast prices, arguing local manufacturers are paying a premium for the cost of export plants built by big LNG producers.
Energy Minister Angus Taylor and Resources Minister Keith Pitt chaired the meeting on Thursday, aimed at instigating an industry-led code of conduct as the Morrison government looks to deliver the biggest shake-up of Australia’s east coast energy market in decades.
Alberto Calderon, chief executive of industrial buyer Orica, told the meeting the competition regulator’s LNG netback formula — effectively the price of LNG shipped overseas less processing and shipping costs — should be amended.
Orica 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.
It says this cost of LNG capital accounts for $2 to $3 a gigajoule in the final price that domestic users pay for gas and should not apply given local manufacturers gain no benefit from the export facilities.
While this view is understood to be shared by several other prominent users that attended the meeting, big producers say the huge capital investment was needed to move Queensland’s coal-seam gas reserves into production. Without the LNG plants and Asian customers, local users would have had to effectively fund new supply themselves.
The industry group for producers, Appea, said while Australia was now tied to international markets, it remained focused on delivering competitive prices by boosting supplies.
“As global markets evolve it becomes all but impossible to quarantine the domestic market from the international market and nor should we seek to do so. The free market operation of gas will deliver efficiency into the market and if we do not restrict supply there will be lower prices for consumers,” Appea chief executive Andrew McConville said after the meeting.
Still, the push by Orica shows tensions continue to bubble away between users and producers over the price of gas on the east coast.
Manufacturers like Orica, Incitec Pivot and Qenos — which all attended the Thursday meeting — say they can’t find gas on a contracted basis for less than $8 to $10 a gigajoule, more than double historic levels.
Producers hit back that those numbers reflect the hefty costs of exploration, production and delivery of supplies to users with the east coast now tied to international markets given the two effectively compete for supplies.
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