Gas supply crisis now ‘worst-case’, says ACCC’s Rod Sims
Summary: Businesses that rely heavily on gas are facing a price crisis that will force some to close their doors, the nation’s competition tsar has warned, as he vowed to use special powers to force gas suppliers to reveal the confidential terms of their contracts.....
Australian Competition & Consumer Commission chairman Rod Sims said yesterday the situation in the east-coast gas market had deteriorated in the past year, leaving businesses faced with a “worst-case scenario’’.
Mr Sims told The Australian the study commissioned by Malcolm Turnbull this week, after the gas industry failed to offer its own solution to tight markets, was as important as any the ACCC had undertaken.
“We think there is a crisis in the gas market, particularly in relation to industry that needs gas, either as a feedstock or a source of energy,” Mr Sims said. “I do think companies will go out of business because of this and I think that will be a crying shame.”
Domestic gas prices have leapt fourfold in some cases as $80 billion of liquefied natural gas export plants at Gladstone ramp up, rapidly tripling demand in the pipeline-connected east-coast states without providing enough new gas supply to feed them.
The situation has been exacerbated by restrictions on gas development in Victoria, NSW and now the Northern Territory, and by a slump in the oil price two years ago that curtailed development of new production.
After unsuccessfully hauling the nation’s most powerful gas executives to Canberra for the second time in five weeks to try to get concrete measures to resolve the situation, the Prime Minister on Wednesday ordered the ACCC to use its special inquiry powers — including its ability to acquire information compulsorily — to scrutinise the industry.
The ACCC completed a year-long investigation into the gas market in April last year. Mr Sims said that although things looked bad back then, they since had become much worse than expected.
“We thought the market was going to get tight but this is worse than we expected,” Mr Sims said. “This is sort of the worst-case scenario.”
Mr Turnbull, as part of a pre-budget energy push, yesterday announced the government would assess funding a major expansion of the Tasmanian hydro scheme, declaring the state had the potential to become the “battery of the nation”.
Mr Turnbull, who last month announced a plan to expand the Snowy Mountains hydro scheme in NSW, said the Australian Renewable Energy Agency would work with Hydro Tasmania on feasibility studies to assess several new pumped hydro-energy storage schemes that could deliver up to 2500 megawatts of storage capacity. Upgrading the Basslink cable link to include a second connector, estimated to cost about $1.1bn, could allow more of Tasmania’s energy to reach the mainland.
Mr Turnbull declared an east-west gas pipeline could be a solution to the gas crisis. “But, clearly, connectivity is vitally important for resilience and energy security and that’s true whether you’re transporting electrons or whether you’re transporting gigajoules of gas or cubic metres of gas; it’s important to have that, so the more pipelines give you more security and flexibility,” he said. “But we’re looking at that, we’re looking very closely at a pipeline opportunity between the Northern Territory and the east coast and also of course to connect the huge gas resources in northwestern Australia as an opportunity.”
Mr Sims said the ACCC’s special powers would be needed to find out whether gas exporters were making good on pledges to support reasonably priced domestic supply. “The only way you can determine whether that is happening is if we are in there with our confidential information-gathering powers making sure that it happens,” he said. “This is as important as any study as we’ve ever been asked to do.”
He said the inquiry in itself was likely to help promote more supply, as occurred during the last one. “The fact they could see we were watching and could look at their documents, meant that more gas was available,” he said. “I except that will happen again.”
The study will run for three years and make formal reports every six months, with the first in October. The ACCC’s previous inquiry yielded no quick fix, delivering recommendations yet to be acted on. It recommended state-based restrictions be lifted, tighter gas pipeline regulation, more market transparency.