ACCC: gas reserves need to be developed

April 29th, 2016

The competition regulator’s landmark report into Australia’s East Coast Gas Market lays out in stark detail the need to develop gas supplies.

The ACCC’s 12-month investigation looked at the markedly different views of gas suppliers and industrial users, finding three major factors affecting supply:

  • Gas flowing to the three Queensland LNG plants, removing supply from the domestic market;
  • Low oil prices and declining investment in exploration, coupled with lower production forecasts;
  • Moratoria and regulatory restrictions affecting onshore exploration and development in four states and territories

We’ll focus on the third factor, as it’s something we’ve highlighted time and time again as a key reason for supply shortages.

It’s an accepted fact that Australia’s eastern states sit atop immense gas reserves – conventional and unconventional – that, if developed responsibly, could fuel domestic and export markets for decades to come.

Unfortunately, possibly spooked by electoral cycles, Governments across four regions have baulked in the face of community campaigns. In their report, the ACCC puts sums up the situation:

“In particular, there are moratoria and other regulatory restrictions in New South Wales, Victoria and Tasmania preventing or impeding onshore gas exploration and development, and consideration is being given to a moratorium on fracking in the Northern Territory.”

The report recommends changes that would, in effect, unlock the gate to gas development – a recommendation based on a range of considerations rather than a misinformed scare campaign from activist groups:

“The Inquiry recognises the important environmental and social considerations underpinning these policy decisions. The Inquiry recommends that proposals for gas exploration and development should, however, be reviewed on a case-by-case basis. These reviews should take account of a range of considerations including the costs and benefits to the domestic gas market, and to industrial users in particular, as well as environmental and social concerns. The greater the level and diversity of supply, located close to demand centres, the more dynamic and competitive the east coast gas market will be.”

The report points to continued uncertainty in the outlook for the east coast market to 2025 and beyond, clearly spelling out the need to develop untapped gas reserves, because:

“Without further and extensive investment in currently undeveloped gas reserves, there may be significant unfulfilled demand on the east coast”

That’s a sound warning – development needs to occur, and given the lead time for projects to be assessed and operationalised, the sooner the better.

The Commission also warns against the implementation of gas reservation policies because of the disincentive effect reservation policies can have on industry investment:

“In the short term, such policies may reduce prices for domestic users as additional gas is forced onto the domestic market above efficient market demand. These artificially reduced prices weaken the economic incentives for further gas exploration and appraisal.”

Perhaps unsurprisingly, anti-industry activists didn’t like to hear any suggestions that their pet crusades calling for moratoria and bans should be lifted.

Lock the Gate issued an indignant media release which completely misses the point, instead choosing to conflate a range of issues including environmental responsibility and insurances.

The report is a clarion call for policymakers across the country to look again at the interests of domestic and industrial gas users, removing barriers to development and allowing the gas to flow.

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