Keith Pitt pushes back against big gas users’ calls for price control
Resources Minister Keith Pitt has pushed back against big users disappointed a pricing mechanism was not introduced in a supply pact made with Queensland’s giant LNG producers.
Resources Minister Keith Pitt has pushed back against big users disappointed a pricing mechanism was not introduced in a supply pact made with Queensland’s giant LNG producers.
Frustration grew among several large consumers of gas after a deal between Scott Morrison and big LNG exporters in January avoided formal price controls, which some manufacturers had pushed for but were strenuously resisted by the LNG industry.
Mr Pitt will tell an industry conference on Wednesday it was the right call, although he understood concerns raised by large domestic gas users.
“I know that there has been criticism of the Heads of Agreement from some sectors. However, our goal is to get the right balance between affordable gas for manufacturers and a price that encourages new gas resource development,” Mr Pitt will tell The Australian Domestic Gas Outlook conference. “I am firm in the belief that we have got this right. But it’s also absolutely important the states work to bring more gas online.
“The imposition of unscientific bans and moratoria, rolling over to green activists and pandering to self-interest could effectively end the gas exploration and production industry.”
Incitec Pivot has been among high-profile manufacturers including Orica and Qenos that say they can’t find gas on a contracted basis for less than $8-$10 a gigajoule, more than double historic levels.
It has also upped the ante for a voluntary code of conduct being negotiated between users and producers, with the federal government to consider stepping in and enforcing a mandatory code if a pact is not agreed.
Mr Pitt will say prices have eased. “Recently we have seen contract gas prices fall to around the $6-$8 a gigajoule mark,” he will say.
“The recent recovery in oil prices to around $US70 barrel means that oil-linked contract LNG supplied into our markets in Asia will be recovering from the low levels of the second half of 2020.”
The Australian Petroleum Production and Exploration Association, known as Appea, has been in talks with users on behalf of producers and recently received initial feedback from the competition regulator on a draft code, suggesting it would present a potential pact in the next few weeks. Still, the two sides appear some way apart on agreeing to any price-setting code. Appea on Sunday said it was working with companies, the government and Australian Competition & Consumer Commission, and was committed to the process.
The ACCC also announced a separate review of the pricing benchmark last month. The ACCC’s LNG netback formula — effectively the price of LNG shipped overseas less processing and shipping costs — needs to be changed, according to Incitec.
Gas prices on the east coast will increase beyond $10 a gigajoule by the late 2020s as LNG imports become the marginal supplier to the market, consultancy WoodMackenzie predicts.
Prices dropped from $8-$14 a gigajoule in the second half of 2019 to $6-$8 a gigajoule, according to the ACCC, but are set to lift further as southern market prices become increasingly linked to Asian LNG markets.
The immediate east coast gas shortfall predicted for 2024 by the Australian Energy Market Operator has eased, but the market will experience seasonal gas shortages through this decade.