Industry fires back in row over cheap gas

Australia’s energy industry has hit back in the row over cheap gas prices, calling on manufacturers to locate industrial hubs closer to supply sources.

Australia’s energy industry has hit back in the row over cheap gas prices, saying east coast users have not been able to access targeted $4 a gigajoule levels since 2006, and called on manufacturers to locate industrial hubs closer to supply sources.

The National Covid Co-ordination Commission chaired by former Dow Chemicals boss Andrew Liveris has recommended the federal government take immediate action to create an Australian energy market that can replicate the US with gas available at just $4 a gigajoule, more than half current levels.

It called for possible intervention by the government to underwrite parts of the industry, ease regulatory hurdles and take stakes in pipelines in a bid to boost manufacturing.

The US comparison does not stack up, according to the industry body representing the nation’s largest producers.

“Suggestions of a US-type gas market being replicated in Australia fail to acknowledge differences in geography, geology, infrastructure and the size and structure of the US economy. Such suggestions risk throwing good money after bad,” Australian Petroleum Production & Exploration Association chief executive Andrew McConville writes in The Australian today.

“We should also not ignore that US gas prices were significantly higher than Australia before shale gas developments. It was the ability of the industry to respond to these prices by innovating and bringing on more supply that was key to prices falling — not market intervention.”

Australia's largest commercial gas user, fertiliser and explosives maker Incitec Pivot, warned on Monday that while Australia had become the largest LNG exporter in the world it needed to balance its trade ambitions with the needs of local consumers.

However, APPEA said calls for $4 a gigajoule gas and complaints by Incitec chief executive Jeanne Johns over high prices were out of step with the costs of supplying the fossil fuel.

“The second notion to debunk is that any industry can survive selling its product lower than its cost of production,” Mr McConville said.

“Manufacturers of course understand this, but some of their representatives including Ms Johns and NCCC member Andrew Liveris seem to forget this, with loose talk of $4 gas prices. The wholesale price of gas in eastern Australia has not been below $4 per gigajoule since 2006 — years before LNG exports from Queensland began.”

The east coast domestic gas price is now linked to international LNG prices and markets.

APPEA said it costs over $6 to produce gas from existing fields eastern Australia and up to $8.25 per gigajoule in new projects, before transport, distribution, and other commercial costs, citing Core Energy data.