Oil and Gas News

Domestic gas market on target: ACCC

The Australian Competition and Consumer Commission’s (ACCC) Gas Market Inquiry 2017-2025 report has confirmed there is no shortfall in the domestic gas market for the the eighth consecutive time.

The ACCC report highlighted actions taken by the oil and gas industry to bring more natural gas into the local market will continue natural gas supply, ensuring domestic gas supply with a surplus of gas available to the domestic gas market.

It outlined that while the fall in oil prices has brought some short-term price relief to some domestic users, it has also increased the risks and uncertainty surrounding the adequacy of future gas supplies in the east coast to meet demand.

“A significant risk facing supply is the impact of low oil prices on upstream investments,” the ACCC report stated. “As we observed in our 2015 East Coast Gas Inquiry, low oil prices can stifle investment in new sources of supply by reducing both the ability and incentive of producers to explore for and develop gas.”

“At present, it appears that COVID-19 has had little effect on the overall level of production in the east coast over the first five months of 2020 compared to the same period last year, although we have observed some regional differences. Production in the Southern states, for example, has fallen, while production in the Cooper Basin and Queensland has increased. Whether this trend will persist is unclear, but we will continue to monitor the effects of COVID-19 on supply.”

APPEA chief executive Andrew McConville said despite facing strong headwinds including COVID-19 and the challenging market conditions, the industry has increased the flow of gas to the east coast domestic market.

“The ACCC has found that domestic prices have continued to fall, with most price offers now in the range of $8 to 10 per gigajoule, with more recent offers below $7 per gigajoule.  Producers – particularly liquefied natural gas (LNG) producers – have made significant volumes of additional gas available to the local market,” McConville said.

“The industry will welcome the opportunity to again discuss the differences between spot gas markets and longer-term contract markets and the factors that mean different price outcomes are observed in those markets. As the ACCC has itself noted on numerous occasions, the LNG spot netback price is not setting a level of gas prices in the east coast gas market or any other market in Australia.”

Through ACCC’s examination of gas producers’ actual production levels compared to their previous forecasts, the report highlights that there is some sign that the market will respond to meet demand, with LNG producers acting to produce enough gas to meet demand.

“The LNG producers’ production levels were, for example, significantly lower than forecast in 2017 and 2018, but in 2019 they produced and supplied more gas into the domestic market than forecast,” ACCC outlined.

Following the Australian Energy Regulator report that was released last week, which showed gas prices at the lowest level since 2015-2016 and spot prices below LNG netback prices, more competition in the gas markets meant cheaper gas.

McConville added that the 2018 agreement between LNG producers and the Australian Government has ensured uncontracted gas sold into international spot markets was offered to domestic customers first.

“It’s within that context the industry will carefully consider any request from Government regarding the merits of extending the Heads of Agreement that was signed in 2017 and extended in 2018,” McConville said.

“The latest report also highlights the ACCC’s concern that customers in New South Wales and Victoria continue to pay more for gas because of state government restrictions on developing local gas resources. The best way to ensure competitive gas prices is more supply and more suppliers – and developing gas resources closest to local markets.”