I have extracted information as detailed in an AFR article...

I have extracted information as detailed in an AFR article published on the 7th of September. As Cottee states in his article, we have the gas, the shortage is looming and we have the gas.
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Richard Cottee was the maverick extractor and marketer who transformed Queensland Gas into a $6 billion target for BG Group and who subsequently fathered the east coast's first liquid natural gas project. Cottee now runs Central Petroleum, a business he reckons could deliver at least 270 petajoules (PJ) of gas to east coast customers but for premium-stripping pipe operators.

Like the ACCC, Cottee is pushing for regulation of the pricing of pipe access. His push sits on two pillars.

The bulk of the national system is comfortably more than 15 years old and has already crossed whatever were the original rate-of-return thresholds that secured the capital required to build them. And yet, he argues, the tariffs charged for access to what can only be regarded as monopoly infrastructure continue to creep up rather than down.

"Mature infrastructure should open up economic development of lesser quality resources, that is how it works. You pay for the infrastructure with the best of the resources and that makes tapping the lesser stuff possible. But if you keep having to pay for the pipeline as if it was a new asset, then the pricing signal doesn't ever get to the producer. Instead, either the resource stays in the ground or the cost is passed on to the customer as demand destruction.

At the same time, there is more demand for capacity in the network than ever before. As a result, there is effectively double-dipping on tariffs. Cottee offers Mt Isa as an example of this phenomenon.

Come hell or high water, Mt Isa consumes about 40pj of gas through any year. APA is contracted to carry 30pj of that supply. That gas comes up from the Ballera gas plant in south-west Queensland. That trip costs either producer or customer $1.56 gigajoule (GJ).

But the dynamics of that market are going to change in the not too distant future. Jemena is building a new pipeline that will link the Northern Territory's gas fields to the national grid through Mt Isa.

Cottee wants to send at least 22pj annually down that pipeline and beyond to east coast customers. To make that happen his gas will need to traverse three or four pipelines. Cottee will need to pay the incentive tariffs that sustain Jemena's adventure and then cover the cost of the journey east that starts with APA's link to Ballera.

Which is all fine, except that the benefit of this new connection is that APA will not actually have to physically move as much gas northwards as it does now.

Cottee's molecules will end up covering the bulk of Mt Isa's requirements, leaving APA with the task of sucking only 8PJ up from Ballera. The balance will be redirected eastwards to cover Cottee's contracts. But Cottee's tariff will be set as though his gas is moving through every inch of the APA network.

Cottee's view, then, is that this represents double dipping on tariffs that are already set too high given the maturity of the system that is carrying the gas.

"Regulation is not in my DNA," Cottee said. "But I can't believe what is happening. We have recently seen $44.90 intraday highs in gas prices, the highest gas prices I have ever seen delivered. And yet we have a two-thirds drop in exploration in this country."


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