Cheap gas is gone' - stark warnings over gas shortage
By Cole Latimer
1 March 2018 — 12:01am
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Consumers and businesses will face higher gas prices as long as southern states ban gas exploration.
In sharp commentary on the issue on Wednesday Australian Competition and Consumer Commission fingering moratoriums on gas exploration in NSW and Victoria as exacerbating a tight supply situation.
A hold on onshore development in NSW and Victoria is pushing up gas prices.
Photo: Glenn Hunt
"The current state of the gas market on the east coast remains a grim one,'' the head of the ACCC’s gas inquiry unit Nicole Ross:
"[We have] to address the fundamental supply problem, particularly in the south. Increased gas supply on the east coast would better serve domestic gas users, especially when global prices are high.''
The ACCC had previously forecast a domestic gas supply shortage, triggering the Turnbull government last year to threaten to enforce a mechanism slashing gas export unless the three major gas companies - Santos, Origin and Shell -
agreed to secure domestic supply, which they have progressively done.
But despite these efforts, high gas prices still remain.
ACCC chairman Rod Sims added that "a blanket ban which captures all potential projects, including conventional reserves, has consequences in the form of significantly higher gas costs for consumers and industrial users of gas in these states".
"It also acts as a brake on exploration and precludes industry even confirming gas reserves that on a robust cost-benefit analysis would improve consumer outcomes.
Onshore gas bans by Victoria and NSW meant it has to be transported from Queensland to the southern states, a process which the ACCC estimates added between $2 to $4 per gigajoule to the price of gas which for large users sits in the range of $8 to $12 a gigajoule.
“High gas prices are a threat to Australian industry’s competitiveness, and can be very stark for low income households relying on gas to heat their homes,” Mr Sims said.
Federal Treasurer Scott Morrison has put pressure on states to lift the bans, saying it was time to "remove the artificial constraints on gas supply in this country, particularly in the south, in New South Wales and in Victoria".
Australian Petroleum Production and Exploration Association chief executive Malcolm Roberts said the southern states' fields are in decline and new gas sources were needed but the bans prevent new discoveries.
"These policies are failure on a grand scale," Mr Roberts said.
NSW and Victoria have to import gas from QLD, which adds between $2 and $4 per gigajoule to the price.
Photo: Michele Mossop
Major gas supplier Origin backed the ACCC's comments on Wednesday.
"With the development restrictions currently in place in many southern markets, the industry is unable to respond with new supply closest to where customer demand is greatest,” Origin's head of gas supply and operations Greg Jarvis said.
“We continue to advocate for gas development bans to be lifted so the industry can respond with new supply in southern markets."
However, the states are denying there are bans in place.
"There is no moratorium on gas exploration in NSW," NSW Energy Minister Don Harwin told Fairfax Media.
"We have a Gas Plan with science-based regulation that ensures communities are listened to and environmental protections carefully managed. We make no apology for these important considerations.
"Unlike the previous Labor Government which handed out gas licenses like confetti at a wedding – we are taking a sensible approach to gas market regulation."
The market has also taken steps to bring more gas directly into the southern states through import terminals, with AGL and the Australian Industrial Energy group developing floating LNG import and regasification terminal in Victoria and NSW respectively.
However, energy retailers believe the opportunity for cheaper gas has already passed and there is no reversing this trend.
"After 30 years, the ubiquitous resource which meant stable prices and constant availability has ended," Mr Collette said at the 6th Annual Australian Domestic Gas Outlook Conference.
"Australia’s golden age of gas is over, we’re no longer the lucky country of gas. Cheap gas is gone."
Mr Collette said the market has reached a point where government intervention in energy prices will have little impact.
“If you plan to batten down the hatches and wait this whole thing out until government takes us back to the golden age I have some more bad news: the government can’t save us.”
Mr Collette said while Australia still has plenty of gas in the ground – the
relatively untapped Waitsia project in Western Australia is one of the largest gas discoveries in Australian history – the cost of extraction has grown significantly,
"We had a great run; 30 years where no one had to worry about gas," he said.
"The older fields were like filling a swimming pool with a fire hose. Some of the new coal seams seem more like filling the swimming pool with a kid’s water pistol. You can do it – but it’s hard work."
Mr Sims said given this longer time frame for development, the lack of supply and bans need to be addressed now.
"Without addressing the supply problem, we will not be able to get to the competitive market that should be available for domestic users of gas.
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