Like it or not, we have been caught up in the global boom in gas prices, which have been driven by bad Government policy locally, and the Ukraine Russia conflict, with the latter using gas as a lever of coercion, reducing Nord Stream flows to 20% and forcing up the price of the commodity and for European countries to grab supplied at any cost from anywhere else.
Data from the Australia Energy Regulator highlights how much prices have risen, with prices significantly higher than a few years ago, based on $ per gigajoule. last week Natural-gas prices soared in European with the benchmark gas prices rising 12% to 198 euros per megawatt-hour.
There will be a very timely DFA Live show tomorrow night with David Llewlyn-Smith, the Chief Economist at Nucleus Wealth, where we are going to explore these issues and ask what can be done. There is, he says an answer which would reduce energy prices substantially across Australia, it just takes political will.
So today we look at the state of play and some of the levers which might be pulled. The ACCC has today released forecasts showing that the east coast of Australia could face a shortfall of 56 PJ in 2023. At the same time last year, their Gas Inquiry interim report found 2022 could face a 2PJ shortfall. “Our latest gas report finds that the outlook for the east coast gas market has significantly worsened. To protect energy security on the east coast we are recommending the Resources Minister initiate the first step of the Australian Domestic Gas Security Mechanism (ADGSM),” ACCC Chair Gina Cass-Gottlieb said. “We are also strongly encouraging LNG exporters to immediately increase their supply into the market.” The root cause problem is that much of the gas produced in Australia’s east coast is produced by companies that are also LNG exporters.
Thus, we are exposed to the worst of the global markets, as LNG (the liquified form of the Gas) is sold internationally. In fact, by value it recently became one of our biggest exports – especially to China. The ACCC’s report raises concerns about the high level of market concentration, noting that LNG exporters and associates had influence over almost 90 per cent of the proven and probable (2P) reserves in the east coast in 2021 through direct interests, joint ventures and exclusivity arrangements.
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