Crunch time as gas prices soar to record levels
East coast gas prices surged back to record levels late last year, prompting a fresh warning that heavy industry and large manufacturers face renewed pressure as they struggle to strike more affordable energy tariffs.
Domestic gas prices jumped by up to 51 per cent in Melbourne last month, compared with the previous year, with Sydney rising 45 per cent, Brisbane climbing 32 per cent and Adelaide 31 per cent higher, data from consultancy EnergyQuest shows.
Users in the southeastern states are still paying up to three times historical prices of $3-$4 a gigajoule, with prices at either record or near-record levels for all major gas markets in the last three months of 2018, according to advisory firm Energy Edge.
Prices averaged $10 a gigajoule or above in the last quarter of 2018 compared with an average of $9 a gigajoule for the first three months of last year, according to Energy Edge.
Still, that may mark some sort of progress, given the Australian Competition & Consumer Commission had forecast prices to top $15 a gigajoule this summer.
The Australian Industry Group, which represents 60,000 manufacturing and industrial businesses, said the gas crunch continued to threaten the viability of big users, which are seeing little let-up in their negotiations with energy producers.
“Industrial users still need to find lower prices,” Ai Group’s chief policy adviser, Tennant Reed, said.
“Many remain in difficult negotiations with domestic suppliers and from what I’ve heard there is a discussion to be had but the price is very difficult.”
Five competing LNG import projects have been proposed for the east coast to arrest a shortfall of supplies for domestic users as cheap volumes from traditional sources such as Bass Strait begin to decline.
At the same time, new sources of production, including Queensland’s coal-seam gas deposits, are being largely shipped to customers in Asia, exposing the east coast market to international pricing.
The linkage between the east coast and international LNG prices took shape after Queensland’s three export projects helmed by Origin Energy, Santos and Shell started shipping local gas to Asian customers over the past few years, which effectively tied the two markets.
“It feels that the international price linkages are causing the domestic prices to follow,” Energy Edge managing director Josh Stabler said. “Government intervention has a bit of self-fulfilment to it. Regulators discuss the international linkages and now the market gravitates to it.”
The most realistic way to cut prices — rather than building Australia’s first LNG import terminals — is to ratchet up locally produced gas in the southern states to help snap the cost of paying for supplies piped down from Queensland or imported from overseas, ACCC boss Rod Sims said last year.
Santos, one of Australia’s largest gas producers and operator of the GLNG export plant in Queensland, said plans for the nation to import LNG would trigger a price hike and supply squeeze, ensuring foreign operators “have a gun to the head” of local manufacturers. It wants to develop its Narrabri CSG project in NSW to boost supply and lower prices rather than replying on planned import plants.
Resources Minister Matt Canavan said Australia needed to develop more of its own hydrocarbon reserves.
“To get lower prices we need more supply of gas. That’s been the consistent advice from the ACCC and other advisers to the government on these matters,’’ he said.
Opposition energy spokesman Mark Butler said the government had failed to deliver affordable suppliers to local users despite declaring the gas crisis was over.