Manufacturers push for gas price guarantee
Australia’s manufacturing giants have raised the pressure on the Morrison government.
Australia’s manufacturing giants have raised the pressure on the Morrison government to deliver on its pledge for a gas-fired economic recovery, urging a controversial price trigger to be introduced in its east coast gas policy ahead of crunch talks with producers on Monday.
The government has been working with industry on negotiating a new heads of agreement to ensure Queensland LNG exporters offer sufficient gas to domestic users under a scheme called the Australian Domestic Gas Security Mechanism.
The new pact, which will apply for 2021 and 2022, has been given extra spice, with the nation’s biggest gas users strongly lobbying for a price clause to be introduced to the heads of agreement for the first time in the hope it will lower the cost of the vast gas quantities they purchase.
Energy producers will fight back should the pricing option be introduced, arguing the rewrite of regulatory rules will damage future investment and Australia’s sovereign risk profile.
Major gas users including billionaire Anthony Pratt’s Visy Industries, Qenos, Incitec Pivot and Orica took part in a high-level meeting on Thursday with Resources Minister Keith Pitt and Energy Minister Angus Taylor to put forward their case for the radical policy change.
Sources said a draft heads of agreement was set to be sent on Monday morning by Mr Pitt to the three Queensland LNG exporters — the Santos-led GLNG project, Origin Energy’s APLNG and Shell’s QCLNG.
The Resources Minister has then called the three gas giants to a meeting on Monday afternoon to discuss the draft document with the clock ticking on concluding a deal given the existing pact expires in November.
The agreement works by ensuring LNG exporters offer uncontracted gas to the domestic market in the event of a shortfall, giving local users access volumes of gas before they get shipped offshore to Asian buyers. It is currently based on a supply trigger, but manufacturers say adding a price mechanism would ensure they not only get the quantities of gas they need but at affordable levels.
But big industry claims the existing policy has not done enough for the domestic market, complaining of ongoing issues striking long-term gas supply deals at affordable prices which they argue have put the future of big manufacturing facilities under a cloud.
Mr Pitt and Mr Taylor quizzed manufacturers at the Thursday meeting over the level of investments and plant expansions they could commit to in Australia if gas prices fall in the coming years. The manufacturers in attendance — which also included Brickworks and AdBri — presented a united front, saying they believed the gas market was “broken” and called for the trigger to be introduced.
The energy users repeated a claim that they could not find gas on a contracted basis for less than $8 to $10 a gigajoule, more than double historic levels, which could force some facilities to import products rather than producing Australian-made goods or even shut their doors.
Producers, however, could retaliate if new controls are introduced after over $70bn has been sunk into the three Queensland LNG plants. One of Origin’s partners in APLNG, US giant ConocoPhillips, has cautioned the Morrison government against intervention in Australia’s gas market, warning investment could stall if price controls are introduced.
The federal government faces a difficult juggling act keeping both parties happy. Mr Morrison in a September pledge said the government would “strengthen price commitments” as part of plans to get more gas in the market and re-establish a strong economy after a COVID-19 economic rout.
Industry insiders say one possible path could see the government introduce wording over reasonable pricing into a separate “voluntary” code of conduct currently being thrashed out between producers and users.
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