‘Extremely concerned’: ACCC calls for reform as gas prices rise
Former ACCC chair Rod Sims says Australia needs to look at a carbon tax to reach net zero emissions. Photo: AAP
Households are being warned to brace for higher gas prices this winter as the consumer watchdog warns southern states are facing supply shortages.
Gas giants are producing more gas than they plan on supplying to the local market, according to new ACCC data, driving fears they want to export much of it overseas.
In a new report released on Wednesday, the Australian Competition and Consumer Commission said New South Wales, Victoria and South Australia face a gas shortage in 2022 and will rely on Queensland for additional energy.
It threatens to worsen a recent spate of gas price rises being driven by a global squeeze from which Australia has so far been shielded.
And one expert said it means the Morrison government’s ‘gas-led recovery’ has failed to live up to its ambitions.
ACCC chair Rod Sims said rising prices are a risk to households and businesses over winter and extra gas in Queensland might not be enough to ease southern state shortages, particularly across Victoria.
“People’s gas prices have already gone up significantly,” Mr Sims said.
“It [also] affects manufacturing industries like cement, glass and paper.”
Gas producers have already hiked contract prices for supply in 2022 by 8 to 14 per cent, the ACCC said in its latest market report.
Mr Sims said producers may need to direct their spare gas to Australian markets rather than exporting it to ease the shortages and price rises.
He is “extremely concerned” by new ACCC data showing gas producers plan to produce more gas than they supply to the local market in 2022.
The ACCC wants the government to renew an arrangement forcing gas companies to offer out-of-contract supplies to Australia before exporting.
The scheme – introduced in 2020 to crack down on producers sending their gas offshore for less money than they sell it in Australia – expires in January.
‘Gas-led recovery’ clouded by rising prices
Energy expert Andrew Harpham, a director at Frontier Economics, said Australia has been largely shielded from a global gas crunch that more than doubled prices in many overseas markets like Europe last year.
But Australia has not been entirely immune, he said.
The ACCC found producers started raising their 2022 prices midway through last year.
These contracts went from between $6.2 and $8.2 per gigajoule (GJ) up to between $6.7 and $8.2 per GJ, according to new ACCC market data.
Over this period, average retailer prices also rose from $7.29 to $8.15.
These are the prices paid by retailers at the wholesale level, and they affect how much consumers pay down the line.
Source: ACCC (click to enlarge)
Mr Harpham said rising gas prices have put a cloud over the Morrison government’s ‘gas-led’ recovery, particularly because a key premise was that cheaper gas would create more local manufacturing jobs.
“I don’t see a world in which we can bring gas prices down materially enough that it spurs new industrial capacity,” Mr Harpham told TND.
Mr Sims said local manufacturers have been put under the pump by rising prices and that if it continues some firms will be forced to close.
“The industry keeps saying that everyone who wants gas eventually gets it,” he said.
“The problem with that is that the price is such that firms close down.”
ACCC calls for gas supply reforms
Mr Harpham said a lack of new gas supply was driving shortages in the southern part of Australia.
But he said there should be just enough in 2022 if Queensland helps.
“It’s really beyond this year that we start to need new supply,” he said.
“Something needs to happen or we’re going to run out of gas.”
Mr Sims said the scheme forcing producers to supply the local market before they export their gas must be renewed to help stave off gas shortages and keep prices lower for households and businesses.
ACCC data shows producers have an extra 122 petajoules (PJ) of gas in 2022 they could supply to the local market rather than exporting it.
Despite this, the industry plans to produce 27PJ more gas than they expect to supply to the local market in 2022, according to the ACCC.
Source: ACCC (click to enlarge).
Whoever wins the federal election slated for May will decide whether to renew the arrangement, but Mr Sims said it could also be strengthened.
“Policing the requirements is very difficult,” he told The New Daily.
“We at the ACCC find it very hard to get information – we weren’t really given any extra ways of getting information to find out what’s going on.”
Energy Minister Angus Taylor said the scheme, which he helped create, has ensured competitive gas supply for Australians.
But he stopped short of endorsing a renewal in public comments about the ACCC report on Wednesday.
He also failed to address a slate of other market reforms recommended by the watchdog in its latest report, including changes that would curb the market power of major producers when new projects are being created.
Mr Sims said the ACCC is concerned big gas firms are using their power to sit on new projects instead of supplying gas because it raises prices.
The ACCC wants governments to consider new players when they are releasing public land for these projects to raise the number of producers supplying gas – increasing competition by reducing the relative power of established producers.
Mr Sims said these reforms are “important” for ensuring adequate gas supply, particularly for southern states like Victoria.
Mr Harpham said a lack of competition in the market has given sellers “all the bargaining power”, allowing them to increase gas prices.
“The only way to break that is to find other sources of gas,” he said.