Stakeholders disagree on gas market intervention

A major industry body says heavy-handed intervention in the domestic gas market could discourage market participation.

This week, in return for backing its tax cuts, the Federal Government made a deal with the Centre Alliance to investigate a gas reservation policy and bringing down domestic gas prices.

But the Australian Petroleum Production and Exploration Association (APPEA) said any market intervention needed to be carefully managed.

“Sensible reforms can improve the efficiency of the gas market and improve its operation,” said APPEA Chief Executive Andrew McConville.

“However, market interventions could adversely affect confidence in the oil and gas sector as well as discourage new market entrants and supply diversity.

“Ongoing investment is crucial for economic growth and being able to fund the very tax cuts Federal Parliament is debating.

“Investment will only continue if businesses are confident they can manage the risk associated with the investment.”

Mr McConville pointed to recent deals made between gas producers and manufacturing businesses as proof the industry was taking steps to increase domestic supply.

“We have seen another new gas sales deal announced by the Australia Pacific LNG venture with manufacturers Orica and Orora,” he said.

“The new supply also adds to the significant number of new gas agreements announced in the past three years to domestic customers.

“Increasing supply should be the focus of government, industry and all Australian businesses that rely on sustainable gas supply.”

News of the government intervention has been welcomed by the Australian Industry (AI) Group which said increasing gas prices on Australia’s east coast had been “painful for all energy users”.

“It casts a particularly deep shadow over the future of gas intensive manufacturing,” said AI Group Chief Executive Innes Willox.

“And it accounts for a large part of the rise in wholesale electricity prices, which pressures an even wider range of businesses.

“A major response is needed that ensures sufficient supply, competition, scrutiny and demand management to keep gas prices at the lowest sustainable level and shrink the impact of gas prices on energy users’ final costs.”

While placing any restrictions on LNG exports has been resisted by APPEA and major gas producers, like Santos, Mr Willox said the approach to the issue will be pivotal to movement on price.

“The specific settings in policies around export control triggers, prospective reservations or national interest tests will make the difference between success, failure and irrelevance,” he said.

“Whether prices come down, go up or are completely unaffected as a result of this deal will depend on the follow through.”

The government is yet to release the specifics of what action it will take on the gas market.

A recent report from the Australian Competition and Consumer Commission said some of Australia’s largest gas users are paying more than $11/GJ.

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