Article in todays Fairfax press by Angela MacDonald-Smith... key...

Article in todays Fairfax press by Angela MacDonald-Smith... key points;

- Central Petroleum has kicked off an expected clash between gas producers and pipeline owners.
- Gas pipeline owners are reaping "super-profits" from assets that have long since delivered their investors a reasonable return, preventing the higher prices being seen for gas from encouraging new supply, according to junior producer Central Petroleum.
- In a fiery submission to an inquiry into gas pipeline regulation, Central accuses pipeline owners of abusing their market power, intimidating customers and of hiking up tariffs to levels that bear no relation to the cost of services supplied.
- The arguments back the junior gas producer's call for "urgent" reform of economic regulations that apply to pipelines to avoid also destroying demand in the east coast because competitive gas is no longer available.
- The appeal comes in Central's submission to the inquiry being led by Dr Michael Vertigan
- It sets the scene for a major clash with the country's biggest pipeline owner, APA
- Central chief executive Richard Cottee tells Dr Vertigan in a letter accompanying the submission that the current regulatory system for gas pipelines "was designed for last century". He says that in an advanced market it would not have taken an inquiry by the national competition regulator to establish the problem as the market would have given off the price signals in time for new supply to come on.
- Mr Cottee said the present system allows those companies that have acquired gas pipelines from their original developers "to charge as if they were greenfield investments well past the time the capital has been repaid. Mature pipeline assets in particular need to be subject to economic regulation to ensure they do not become a source of market dysfunction," Central says in its submission to Dr Vertigan's task force, which was set up after an Australian Competition and Consumer Commission inquiry found some gas pipelines were exercising "market power".
- Central's attack on pipeline regulation comes as it seeks a better deal for gas transportation tariffs to supply gas from its fields in central Australia to customers on the east coast. Its criticism does not relate to tariffs charged on the new Northern Gas Pipeline between the Northern Territory and Queensland that is being built by Jemena, but on tariffs charged on existing pipelines that would deliver the gas further south, to Brisbane or Sydney.
- In an example cited in the submission, Central points out that more than half the $4.80 a gigajoule transportation and processing costs to get its gas to the east coast would be collected by existing and mature pipelines that require no new investment.
- Central's submission paints a picture of a market where gas pipeline owners hike up tariffs for services such as storage to whatever the market can bear instead of basing them on actual costs, resulting in one case to a 400 per cent increase.
- It says gas customers are very hesitant to publicly challenge prices for pipeline services in fear that pipeline owners would "retaliate" when existing contracts came up for renewal.
- "Businesses with unchecked market power often intimidate the market even if it is just on the subliminal level," Central says. "This appears to be the case in the east coast."
- The existing test used to decide whether a gas pipeline has its tariffs regulated depends on its impact on competition upstream or downstream of the line.
- Central notes that the average "citygate" gas price has nearly doubled in the past two years to $8 a gigajoule and yet the higher price has not driven suppliers to increase investment. It says pipeline tariffs are masking the price signal that would otherwise have driven new investment.