Producers warn Canberra over gas cap threat
The group representing the major oil and gas producers has fired back after a major union and a leading industry group called for a cap on gas exports.
Big gas producers have written to Resources Minister Keith Pitt warning the federal government that Australia could turn into Venezuela if it puts a cap on gas exports as an acrimonious battle over high spot prices rumbles through the industry.
Mr Pitt was formally asked to consider capping gas exports by a major union and a leading industry group on Monday, with claims the nation’s manufacturing comeback was “in danger of being jeopardised by high gas prices”.
In a joint letter to Mr Pitt, Australian Workers Union national secretary Daniel Walton and Australian Industry Group chief executive Innes Willox wrote that the spike in gas prices this year was “creating a real risk there will be a domestic shortfall in gas availability for our critical manufacturing industries”.
They asked Mr Pitt to consider “pulling the trigger” on the Australian Domestic Gas Security Mechanism, which limits producers from exporting when there is a shortfall in local supply.
However, the group representing the major oil and gas producers has fired back saying the demand by the AWU and Ai Group was alarmist, ignored the reality of gas supply in Australia and “plays politics” with Australia’s energy security future.
“Any type of intervention is simply not needed, not warranted and would decimate Australia’s gas industry,” Australian Petroleum Production & Exploration Association chief executive Andrew McConville wrote in a letter to Mr Pitt on Monday.
“International evidence shows government interventions in oil and gas markets discourages investment in exploration and long-term supply and does not guarantee lower prices, so unless Australia wants to go down the path of Venezuela-type policies and risk our energy future, I would encourage you not to intervene in a market that is clearly working.”
The Weekend Australian revealed Anthony Albanese had thrown Labor’s support behind invoking the ADGSM, declaring that Australian jobs should be “put first” as the nation tried to pull through the pandemic.
Wholesale spot prices in Victoria have receded after soaring to $58 a gigajoule on Friday but remain more than triple normal levels at $25 a gigajoule in Sydney and $18 a gigajoule in Melbourne on Monday.
Spot prices were not a reliable indicator of the gas market with contracts insulating users from volatility, Appea said, noting prices were nearly 30 per cent cheaper in Australia compared to its major Asian gas trading partners.
“Contract prices are insulated from such extreme swings, and I would encourage you to look at long-term averages as opposed to one-off cherry picking of prices,” Mr McConville said.
“Contract prices better reflect the long-term average of gas prices in the Australian market.
“Only 10-15 per cent of gas quantities are traded through spot markets, so the vast bulk of manufacturers are on longer-term contracts where prices do not fluctuate in line with spot price movements. Given most manufacturers are in long-term contracts, spot prices are mostly irrelevant.”
Pressure has been mounting for the government to pull the trigger on capping gas exports after prices soared in Victoria and NSW.
However, producers point out that gas flows on one of the main pipeline routes from Queensland to southern states is already operating at full capacity.
They argue no additional gas can be physically supplied to manufacturers from the big Queensland LNG plants even if the domestic gas mechanism was triggered. Gas flows from the Queensland hub of Wallumbilla to South Australia’s Moomba hit maximum capacity on Saturday.
More Coverage
