Gloves are off: Government versus the gas giants

The ACCC report warns of a significant domestic gas shortfall next year unless the LNG producers redirect some of the uncontracted gas to the local market.

(It marks a turnaround from the ACCC’s February assessment that the gas market would be in domestic surplus next year.)

The LNG producers say there is more than enough gas to supply the shortfall identified in the ACCC’s Monday report – effectively disputing there is a crisis looming.

The existing mechanism that outlines the way producers satisfy the government’s heads of agreement with producers to support domestic supply is referred to as a “gentleman’s agreement”.

However, it seems the government is sceptical of the gas industry’s willingness to honour it and can’t afford the risk to industry and consumers if it is not.

The ACCC’s report is clearly suggesting the behaviour of some gas companies amounts to not playing cricket.

“There remain instances where some suppliers are not engaging with the domestic market in ways that are likely to result in supply agreements being reached and market conditions improving,” the ACCC wrote.

That includes offering uncontracted gas to domestic users at prices above the international market.

Invoking the Australian Domestic Gas Security Mechanism, or even threatening to do so, enables the government to flex it muscles on gas supply, but it doesn’t address the issue of price, according to a big group of industrial customers who lobby under the banner of the Energy Users’ Association of Australia.

Presumably, there would be little argument from the LNG industry over selling more product into Australia if the price was comparable to that being paid in the booming international spot market.

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But domestic users don’t have the stomach to pay the elevated international spot prices that are running as high as $US40 ($57) per MMBtu.

In Australia, 90 per cent of domestic customers are contracted and currently paying a fraction of that.

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