Gas short­fall to cause power price rise

Dairy News Australia - - NEWS - STEPHEN COOKE

LIM­ITED DO­MES­TIC gas sup­plies next year are caus­ing sig­nif­i­cant price rises, which will hurt the dairy farmer through ris­ing elec­tric­ity costs and po­ten­tially re­duced far­m­gate prices through pro­ces­sors. The short­fall is caused by liq­ue­fied nat­u­ral gas (LNG) pro­duc­ers chas­ing more money over­seas by sell­ing to in­ter­na­tional spot mar­kets. The Aus­tralia Gov­ern­ment has re­leased the ACCC’s first in­terim re­port into the sup­ply of, and de­mand for, whole­sale gas in Aus­tralia. The Gov­ern­ment di­rected the ACCC to con­duct an in­quiry into the sup­ply and de­mand of whole­sale gas in Aus­tralia, with in­terim re­ports to be de­liv­ered ev­ery six months. “The in­terim re­port projects a sup­ply short­fall in the east coast gas mar­ket of up to 55 peta­joules (PJ) in 2018, which could be as high as 108 PJ if do­mes­tic de­mand is higher than ex­pected,” ACCC Chair­man Rod Sims said. “One PJ is enough gas to sup­ply the res­i­den­tial needs of War­rnam­bool, or a large in­dus­trial user for a full year. “Gas and gas-powered gen­er­a­tors are also an im­por­tant part of elec­tric­ity gen­er­a­tion, so higher gas prices feed in to higher elec­tric­ity prices, lead­ing to a dou­ble hit for many.” The ACCC said for many com­mer­cial and in­dus­trial (C&I) users, gas is an ir­re­place­able source of en­ergy. These com­pa­nies can’t pass on costs as prod­ucts they make are of­ten sup­plied on in­ter­na­tional mar­kets. The ACCC says Queens­land LNG projects have caused a sig­nif­i­cant dis­rup­tion to the mar­ket and the sup­ply-de­mand bal­ance. In 2018, the LNG projects will to­gether pro­duce over 70 per cent of the east coast’s gas and ac­count for two-thirds of the east coast’s gas de­mand. “The ex­pected short­fall could be re­duced to a sig­nif­i­cant ex­tent if the ex­pected sales on in­ter­na­tional LNG spot mar­kets were in­stead redi­rected to the do­mes­tic mar­ket,” Mr Sims said. Mr Sims said prices in south­ern Aus­tralia are caused by lack of sup­ply and lack of com­pe­ti­tion be­tween south­ern gas sup­pli­ers. The ACCC has de­ter­mined ap­pro­pri­ate bench­mark prices against which to as­sess cur­rent do­mes­tic prices and prices be­ing of­fered to C&I users. These bench­mark prices, based on in­ter­na­tional LNG spot prices, are $5.87/GJ in Queens­land and up to $7.77/GJ in the rest of the east coast. “On the east coast, par­tic­u­larly the south­ern states, users gen­er­ally have only one sup­plier, and price of­fers in 2017 have gen­er­ally been in the range of $10–16/GJ. “The sit­u­a­tion in the east coast gas mar­ket is se­ri­ous and op­tions to ad­dress the prob­lems in the im­me­di­ate term are lim­ited,” Mr Sims said. The Aus­tralian Gov­ern­ment has re­cently im­ple­mented the Aus­tralian Do­mes­tic Gas Se­cu­rity Mech­a­nism (ADGSM), which al­lows for the re­stric­tion of LNG ex­ports in an ex­pected short­fall year, with the aim of di­rect­ing those sup­plies to meet do­mes­tic de­mand. “Ex­port con­trols may go some way to ad­dress­ing this short­age in the short term. How­ever, fur­ther steps are needed to ad­dress the un­der­ly­ing prob­lems of lack of gas sup­ply and lack of di­ver­sity of sup­pli­ers in the east coast gas mar­ket,” Mr Sims said. In a sub­mis­sion to the ACCC ear­lier this year, Sa­puto’s War­rnam­bool Cheese and But­ter warned that the cost of gas for its Al­lans­ford plant will in­crease by 50 per cent from 2018 due to “( Vic­to­rian) gov­ern­ment pol­icy re­strict­ing gas ex­plo­ration”. Ear­lier this year, Aus­tralian Dairy Farm­ers said the gas cri­sis could drive pro­ces­sor costs up 50–100 per cent or more over the next two years. “The gas price rises will have a flow on ef­fect and will be felt by dairy farm­ers through their pro­ces­sors,” in­terim CEO John McQueen said. Un­like elec­tric­ity, which can be pro­duced by al­ter­na­tives such as so­lar and wind, pro­ces­sors have no choice but to use gas to pas­teurise and dry milk in man­u­fac­tur­ing.

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