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If the PM is serious about reducing gas prices, he needs to address price fixing

The government should explain to taxpayers just how its gas policy will make energy more affordable and how employment will be created.

In a media release dated 15 September 2020, Prime Minister stated:

Gas will help re-establish a strong economy as part of the government’s JobMaker plan, making energy affordable for families and businesses and supporting as part of Australia’s recovery from the COVID-19 recession.

Prime Minister Scott Morrison said the government would reset the east coast gas market and create a more competitive and transparent Australian gas hub by unlocking gas supply, delivering an efficient pipeline and transportation market, and empowering gas customers.

The Institute for Energy Economics and Financial Analysis (IEEFA) a global independent researcher and adviser on energy markets, follows global gas market developments, including those in Australia. In recent posts it advises that Australia is not short of gas, on the contrary, it is a major extractor and exporter of gas. Of the gas extracted in the eastern Australian market, only 30% is used for local consumption – both industry and domestic. The remaining 70% is exported. The price of gas in the eastern Australian market is roughly double what Western Australian users pay; although gas supply in the West appears to be highly profitable. Referring to the eastern Australia gas market, IEEFA comments:

The illegal price fixing of gas that occurs in eastern Australia is so openly accepted that the Australian Competition and Consumer Commission (ACCC) runs an almost never ending gas price enquiry. The ACCC has written 15 reports on gas pricing in the eastern market over two enquiries spanning five years. Each weighty ACCC report essentially comes to the same conclusion – we pay too much for gas on the east coast of Australia.

So it is clear that the high price of gas in the eastern Australia market is not caused by a lack of supply and that increased supply will not necessarily change pricing practices.

Looking at the market in a global context IEEFA notes that the price of gas in the eastern Australian market is:

Over five and a half times that of Qatar, the second largest exporter of
Over three times the price of gas in the USA
Nearly five times the price of gas in the Russian federation.

Clearly, if the government is serious about reducing prices in the eastern Australian market, it needs first to address price fixing. Supply is already abundant, assuming that the government could require producers to reserve more supplies for the domestic market as the Western Australian state government does. Alternatively it could import gas from Qatar, or another low-cost source. Proposals to establish gas import terminals in Australia presumably reflect just this intention.

The government’s release implies that there is a large and growing need for gas – for industry, domestic and power generation purposes.

However, in recent years there has been a move away from gas both by industry and domestic users. High prices have forced industry to look at other options and for many applications heat pumps are replacing gas at lower cost and free of . Domestic users have also moved to heat pumps (e.g. reverse cycle air conditioners) and electric appliances. In the energy space batteries are competitive with gas and seriously eroding its market share. Major pumped hydro projects are under construction (Snowy Hydro 2 and Battery of the Nation). New and enhanced interconnectors, facilitating back-up to local shortfalls from the grid, are reducing the need for local back-up of .

So how is gas getting on? IEEFA reports that:

Gas consumption overall in the eastern Australian market has fallen by 23% since 2014
Gas consumption for electricity generation has fallen by 67% since 2014

This does not suggest that there is an unsatisfied market for gas on the eastern seaboard but rather the opposite. This is before we consider the implications for gas of the on and the likely outcomes of the forthcoming UN Framework Conference on Climate Change (UNFCCC) Conference of the Parties (COP) in November.

Natural gas is mostly methane, a potent comparable to coal in its impact on the environment when flaring and “fugitive emissions” in extraction, transportation and use are taken into consideration. Australia’s main markets (Japan, China and South Korea) are committed to phasing down and eventually ceasing gas use under emissions by 2050 commitments (China by 2060).

The government should explain to taxpayers just how its gas policy will make energy more affordable for families and businesses and how employment will be created – maybe some construction jobs on gas infrastructure; at risk of becoming stranded assets? It should also tell us how increased gas production and use will square with our commitments to reduce greenhouse gas emissions.

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