The hills are alive with the sound of music

Two pieces in the AFR today.

Matthew Stevens' column, ' Cottee’s pipe dreaming'. The juice:

"On Monday we presented Richard Cottee’s view that the pipeliners’ quite rational abuse of their monopoly pricing power was constraining the gas producers’ response to incentive pricing.

"Cottee runs Central Petroleum. It is a moniker that accurately announces where Cottee’s gas is. Currently Central has no eastern market because there is no way of getting the gas to customers. After Cottee’s extremely successful lobbying of a past NT government, the pipeline problem is being solved by Jemena. It will spend $800 million to get Cottee linked to the east coast market by late 2018.

"But Cottee is still not happy. He reckons that transportation will account for half his city-gate gas price, not because Jemena is too expensive but because access to the rest of a much more mature set of pipes is.

"Cottee’s situation has resounded with the ACCC. Like Cottee, the competition regulator has become attached to the idea that pipeline pricing should be regulated after an appropriate unregulated payback period.

‘‘We just don’t see pipelines paying for themselves after some arbitrary 15-year period,’’ Jemena’s Shaun Reardon told (the AFR) earlier this week.

‘‘We have contracted to build the pipeline and we will do that with less than half of its capacity contracted. We remain committed to and convinced about the long-term potential of NT gas. But there is no certainty that the pipelines will be full through its first years of operations. We carry that risk. Richard might say we will have made a rate of return after 15 years, but that is just not how we see it.

Jemena’s successful pitch for the NGP was sustained, in part, by its bullish view of the NT’s potential. As a result there is room on its easement from Tennant Creek to Mt Isa for a second 12-inch pipeline and the company has made public its plan to build its own link from Isa to the east coast gas hub of Wallumbilla.
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Ash here. I find it bizarre that Jemena is talking seriously of doubling capacity with a second parallel pipe when it hasn't yet laid a metre of the first skinny one. Jemena would be well aware of the contractual constraints on CTP inhibiting signing a transportation deal. They clearly know exactly how much stranded gas there is in CTP's reserves. Cottee's finger-pointing is at the existing pipe network (think APA), not Jemena.
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And a letter from Australian Pipelines and Gas Association's Cheryl Cartwright. The juice:

"Any reduction in transport cost will have minimal impact on the delivered price of gas.

"The high cost of gas is caused by supply constraints, not transportation.

"It can’t be denied that pipeline regulation might reduce the costs of delivering Central’s gas to southern states. Central’s fields are in the middle of the Northern Territory and its gas must travel thousands of kilometres to reach Sydney or Melbourne. However, Central simply doesn’t have enough gas, or face enough competition, to materially change the price of delivered gas in Eastern Australia. Any price reductions from regulation would simply increase Central’s profits, not benefit consumers.
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Ash here. Cottee's dream inches toward realisation: big volumes of gas going East on utility-return pipes, to the benefit of CTP shareholders.

GLTA