RC's plan coming together

Article in today's AFR titled "Cottee's hot air winning gas pipe wars" by Matthew Stevens. Salient point are below:

- Australian gas customers could pay up to 25 per cent less to transport their product to market if the mature pathways of the national gas pipeline network were more effectively regulated, the Australian Competition and Consumer Commission has been told.
- The advice to the regulator comes from Central Petroleum, an emerging gas and liquids producer whose name describes its geographic bailiwick, which looms as the biggest ASX-listed winner from the Northern Territory's decision of sponsor construction of a pipeline that links central Australian gas resources to energy ravenous east coast markets.
- Given the NT's pipeline project, along with the COAG endorsement that sped its progress to a construction tender eventually won by Jemena was, in the first place, seeded by Central and its loquacious boss Richard Cottee, that overweight level of benefit should come as no surprise.
- If the story of the Northern Gas Pipeline says anything it says that Cottee is a convincing and effective lobbyist. And, having aligned the stars on the pipeline he so needed to establish genuine market relevance for Central gas, Cottee is now hard at work pitching the cause of pipeline regulation to governments and their market overseers alike.
- The Cottee position is that Australia's historically high gas prices are not translating into increased supply because too much of the incentive is being absorbed by the owners of mature pipelines that have already paid for themselves and are now generating monopoly rents.
- A confidential briefing paper seen by The Australian Financial Review asserts that effective regulation of the mature pipeline network "could reduce delivered gas costs by around $2/GJ [gigajoule]".
- To put that number into some industry context, the nation's biggest pipeline operator, APA Group, reported recently that Australia's average city-gate gas price was $8 a gigajoule.
- And that sums it up really. It was received wisdom three or four years ago that Santos needed an incentive price of better than $6 a gigajoule to justify investment in a new generation of Cooper Basin production. Cottee likely has a lower cost of production than that but he needs to send his gas further.
- What makes all of this very important indeed for Australia's pipeline operators is that Cottee, once again, appears to have the ear of both regulators and government on this issue.
- The ACCC has already recommended a change to the regulatory test that frees pipelines from coverage of the competition law and COAG recently signalled it was listening by forming the Gas Market Reform Group to examine market reform.
- The drift to regulation of Australia's pipes presently seems all but a done deal, barring some sort of rear guard action lead by the likes of our favourite pipeliner, Mick McCormack from APA.
- But, for once, I find myself currently siding with those that want to force new rules on the owners of mature assets, if only because the infrastructure has paid for itself and generated a fair rate of return and because I cannot see any other reason why the gas price signal has not introduced new gas to the Australian system.
- Cottee's case that the pipe operators are extracting excessive rents has proved compelling for governments and regulators alike and I can understand why.