Matt Canavan warns states to lift gas bans or risk industry...

Matt Canavan warns states to lift gas bans or risk industry turmoil

• July 17
  Senior Business Writer
  

The Turnbull government has warned gas prices on the east coast have further to rise, which experts say will force under-siege industrial users to the brink of closure unless states agree to boost supplies by opening up more reserves.
Resources Minister Matt Canavan conceded gas prices would increase further if the nation’s east coast failed to develop additional energy reserves to offset declining volumes from areas including Victoria’s Bass Strait. “If we don’t develop more gas, prices will be higher,” Mr Canavan told The Australian.
“To get lower gas prices we need more supply and to do that we need the states to lift their unscientific bans on gas production.”
Just days after the competition regulator called for the biggest shake-up of the nation’s electricity sector in two decades, a new report yesterday highlighted fresh concerns over the pricing and supply of gas into the next decade.
Heavy industry on Australia’s east coast may be forced to shut operations in the next few years with a forecast spike in the domestic gas price threatening to pile fresh costs on the nation’s largest energy users, consultancy Wood Mackenzie said.
Australia’s gas-intensive industries including petrochemical and fertiliser companies would struggle to compete with their international rivals on costs in the early to mid-2020s as gas prices increase further.
A supply shortage, driven by depleting east coast reserves from areas including the Bass Strait, would be exacerbated by a new pricing mechanism linking the domestic market with the international liquefied natural gas sector.
“What has happened in the past may just look like a storm in a teacup compared to what is coming,” said Nicholas Browne, Wood Mackenzie director for Asia-Pacific gas and LNG.
With supply shortages forecast for east Australia from the early to mid 2020s “gas will need to be diverted from LNG export projects or imported via LNG. A new and uncertain market reality awaits gas consumers and producers in east Australia.”
The stark findings may see tensions re-emerge between east coast gas exporters and the federal government which held off implementing export controls this year after the three Queensland projects — represented by Santos, Shell and Origin Energy — committed to fill any domestic shortfall.

Although a review of those export controls — officially known as the Australian Domestic Gas Security Mechanism — is expected to be conducted in 2019, Mr Canavan warned sanctions would not necessarily alleviate prices.
“Export controls cannot force the price of gas below the costs of production and transport,” Mr Canavan said. “The Queensland coal seam gas industry has always been a net contributor to the market and we would be in a much worse position without it.”
East coast gas contracts have surged from traditional levels of $3-$4 a gigajoule as Gladstone’s LNG plants opened up the market to export prices, cheap-to-produce gas has declined and the Northern Territory, NSW, Victoria and South Australia restricted onshore gas exploration.
Contract prices offers ran up to $12-$15 last year before the government threatened export restrictions and ordered the Australian Competition & Consumer Commission to do a three-year probe on the industry using its special powers of investigation.
The ACCC says the measures mean east coast gas prices have now recently been priced at between $8 and $10 a gigajoule. However, experts such as global energy consultant Fereidun Fesharaki say that is unlikely to last with Chinese LNG demand set to drive a global shortage in the next three or four years and push Australian east coast gas prices back above $10 a gigajoule.
For Wood Mackenzie, the medium-term picture is set to become more complex as Australia becomes increasingly tied to the export markets they serve. East coast producers need to be incentivised to keep their gas at home rather than send it to buyers in Asia who are prepared to pay a premium, the consultant contends.
That will push up the local price and place it at a similar level to north Asian markets. Gas on Australia’s east coast could swell by a further 30 per cent to $13 a gigajoule leading to a jump in household utility bills and squeezing disposable income. “In effect a gas short domestic market will need to compete with Asian buyers,” said Mr Browne. “From now on factors such as Chinese attempts to clean up its air and Japanese summer heatwaves will directly impact east Australian gas prices and consumers.”
Despite the domestic gas pledge, the government’s attempt to bring meaningful quantities of new gas to market remains challenging due to the growing impact of east coast LNG exports and increased gas power demand as older legacy contracts expire. Wholesale gas prices paid by business jumped by nearly 40 per cent last year, according to EnergyQuest.