GOT GAS: Government deal only likely to cap prices

The task of running Australia is not one anyone should envy and you need only look to the drama surrounding last week’s signing of a new heads of agreement between Australia and three major LNG exporters on the East Coast to secure additional gas supplies.

Under the new deal, more gas will be made available to the market in 2023 with a spokesperson for Resources Minister Madeleine King claiming that an estimated 157PJ of additional gas – or about three times the Australian Competition and Consumer Commission’s shortfall forecast – would be available.

How would this be achieved? Well, according to the government’s documentation here, the first port of call would be offering uncontracted gas to the domestic market before it is offered to the international market – presumably in the form of spot cargoes.

Readers of this column might find that point a tad familiar. But let’s leave that for now and move on to next relevant point (number three) which states that domestic buyers will not pay more for the uncontracted gas than international customers would.

This is a potential minefield that I’m not entirely sure that caveats – including having LNG netback prices and consideration for customers’ individual circumstances – would be able to provide enough of a control on prices.

After all, the average LNG netback price this year is $43.55/GJ while the 2023 average was calculated by the ACCC at $61.07/GJ.
 

No lower prices here

Small wonder that the Australian Workers Union has said that there is “zero chance” for the country to become a manufacturing powerhouse as long as the government refused to intervene and force down prices. Australian Industry Group chief executive officer Innes Willox told Sky News Australia that price of gas would be “backbreaking” for industries and Australian households.

Even King’s colleague Industry Minister Ed Husic admitted the deal would not do much more than prevent prices from blowing out further though King’s spokesperson added that various ministers were “working closely together to see what else can be done beyond the near-term updating of the heads of agreement”.

Never ones to keep quiet, the Climate Council weighed in by saying that the best way for homeowners to save on gas bills was not to have them in the first place – claiming that Australians could save up to $1,900 a year by switching to electric appliances.

This claim was rebutted by the Australian Pipelines and Gas Association, which noted that a full-scale switch from gas to electricity would drive up electricity demand and force prices up anyway.
 

Gas in perspective

It needs to be noted at this point that while gas is an important part of Australia’s energy mix, it made up less than a fifth (18%) of our total electricity generation in 2021 (not including gas used for heating, cooking and industrial processes).

While the latest agreement is unlikely to cut spot gas prices, it is also worth noting that many gas consumers get their supply on long-term contracts.

High spot prices are also likely to drive explorers to find and develop new sources of supply, which will also go some way towards alleviating supply concerns.

As for calls to just outright replace gas, this is still incredibly unlikely given both high use of gas in other areas besides electricity generation as well as the importance of gas-peaking plants, which can quickly ramp up to meet demand.

While renewables are certainly starting to play a bigger role in Australia’s energy mix, the trend has been for wind and solar to displace coal first.

Renewables also need time to ramp up to meet our needs and energy storage needs to be in place to stabilise the grid and provide power when the sun isn’t shining or the wind isn’t blowing, meaning that’s still a need for gas – for now.