Australia is one of the world’s leading natural gas exporters, but rising commodity prices could force many manufacturers out of business, according to the Energy Users Association of Australia (EUAA).
Gas costs for domestic users have risen by as much as 300% since Australia began exporting liquefied natural gas (LNG) from east coast terminals, the industry group said. It is calling on the incoming government to take action, noting that the Australian Energy Market Operator (AEMO) already has warned that the east coast faces a gas supply shortfall as soon as 2024.
The EUAA, which represents many of Australia’s largest gas users, offered a range of potential solutions to the “gas crisis gripping the east coast,” and it called on the government to make gas market reform a priority.
Two years ago, the Turnbull administration pulled back from threats to curb exports after three major producers agreed to put more supply into the domestic market to ease potential shortages. Overseas customers at the time were basically getting first dibs on Australia gas and charged less than domestic customers.
“Whoever wins the upcoming federal election must make solving the gas crisis a priority before we run out of time and options,” said EUAA CEO Andrew Richards. “It’s not too late to fix this, if we act quickly and decisively.”
Since Australia began exporting gas via the east coast LNG terminals, the cost of gas for Australian users has gone up by as much as 300%. The market has softened in the last year, but gas costs are still 200% higher today than they were four years ago, according to the EUAA.
“Supply constraints including state-based moratoria, a lack of genuine competition, low liquidity levels, poor transparency and lingering issues with pipeline pricing are all issues that need to be addressed,” Richards said.
“We need to recognize that mistakes have been made in the past and that we have failed to strike the right balance between maximizing LNG exports and maintaining a reasonable price for Australian gas users.”
Many industrial gas users have reported that if costs are not reduced to more sustainable levels “we are highly likely to see significant demand destruction, job losses and higher prices of many day to day items used by every Australian,” Richards said.
The federal government has taken some actions to address the situation, “but unfortunately it has not been enough and clearly more needs to be done.”
An EUAA discussion paper is attempting to kick start gas market reform. It has put forward options ranging from direct government assistance and market intervention.
“We are confident that the gas crisis can be resolved if governments, industry and gas users act quickly and decisively. We think our discussion paper is a good starting point.”
Among other things, the EUAA is recommending the government change how LNG netback prices are calculated to exclude capital/financing costs associated with the LNG export terminals.
“These fixed costs should not be included in LNG netback calculation given domestically sold gas is never processed by these facilities,” the group said. It also called on a short-term gas support fund to direct subsidies to gas-intensive manufacturing businesses.
Australia gas costs could be cut to about A$7-7.50/gigajoule (US$5-5.37) from a current price of around $10.50 ($7.52) if the measures were to be implemented, according to EUAA.
The government also should consider setting up a commonwealth gas company to act as a wholesale participant in the market, which could provide long-term contracting for new gas developments, EUAA recommended.
“We believe the east coast gas market, already facing significant price increases, will be facing a tipping point within the next 12-18 months with many commercial and industrial gas users facing an uncertain future.”