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Priority on gas prices is positive – the follow through will be decisive

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“Businesses dealing with steep increases in the prices of gas and gas-linked power will be encouraged by reports of a deal between the Federal Government and Centre Alliance on gas policy,” Australian Industry Group Chief Executive Innes Willox said.

“The surge over recent years in Eastern Australian gas prices from among the lowest in the world to export parity – and beyond – has been painful for all energy users. It casts a particularly deep shadow over the future of gas intensive manufacturing. 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.

“Ai Group has warned since 2011 that Eastern gas prices would rise as a result of the expansion of exports. In 2013, as the mismanagement of the impacts of that expansion became clearer, we proposed a national interest test on new export-related development. In 2017 we called for emergency action as prices surged far above export parity. The Government’s response, the Australian Domestic Gas Security Mechanism, induced the gas industry to fill the shortfall of contractable gas. Prices moderated – but have remained at painfully high levels.

“Today’s (July 4 2019) deal between the Government and Center Alliance is the product of commendable focus and flexibility to elevate the gas issue and address it. The agreed policies may provide critical pieces of the puzzle.

“This provisional welcome comes with two major caveats.

“Firstly, there is not yet any detail on the measures agreed. As Ai Group has argued, the specific settings in policies around export control triggers, prospective reservations or national interest tests will make the difference between success, failure and irrelevance. Whether prices come down, go up or are completely unaffected as a result of this deal will depend on the follow through.

“Secondly, the rise in gas production costs and the distance between end users and most new resources mean that gas prices will never return to their former levels. Demand side responses – increased efficiency and, where it makes sense, fuel switching – will be needed to limit long term impacts on commercial and industrial users, power prices and households.

“Industry will be working with the Government to ensure the detail of the reforms agreed delivers for energy users,” Mr Willox said.

Source: Ai Group

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