Why Are Gas Prices Set To Rise In NSW?


Last week the NSW Independent Pricing and Regulatory Authority (IPART) released its draft decision on the price gas retailers AGL and Origin can charge consumers for gas over the next two years.

The draft decision paves the way for an increase of around 17 per cent from 1 July this year. This will cost the average household between $150 and $225 more a year.

Domestic, business and industrial gas users are right to be annoyed. How can a country set to become one of the world’s largest gas exporters be facing price hikes?

As IPART explains in their media release, these increases are actually being driven by the export plans:

“The ability to export Liquid Natural Gas is driving a structural change in eastern Australia’s wholesale gas market, and increasingly domestic gas prices will be influenced by what is happening in world gas markets.”

In other words, it is the price foreign buyers are prepared to pay for Australian gas that will set prices from now on.

This reality hasn’t stopped the NSW Government using the price increases to try to con the public into accepting a coal seam gas industry in NSW.

In February when the price rises were first flagged, NSW Energy Minister Anthony Roberts said, ''growing the natural gas industry in NSW is fundamental to this state's future economic viability but also driving the prices of gas down where we can through increase of supply.''

The government signed a memorandum of understanding with Santos that same month to fast-track their Narrabri Coal Seam Gas project in the Pilliga, describing it as a “Strategic Energy Project”. But the agreement does not guarantee gas from the Pilliga will be reserved for NSW users and Santos is one of the companies seeking to export from Queensland.

Last week the Minister again claimed increasing gas supply would put downward pressure on gas prices, mirroring the language of the gas industry lobby, APPEA. But the Minister’s claims have been torn apart by the experts.

The Australia Institute’s Matt Grudnoff, in his report from July 2013, Cooking up a price rise, explained that “Gas prices in eastern Australia are going to rise substantially” but that, “these price rises are not driven by a lack of supply but rather by an increase in demand.”

This increase in demand is from the three massive Liquid Natural Gas plants currently being built off Gladstone and due to come online next year. Together the capacity of these plants will be double the existing gas demand from households, businesses and industry on Australia’s East Coast.

As AGL pointed out in their submission to IPART, existing gas supplies are already being reserved under contract for supply as LNG exports. This means that even before exports start, the price overseas buyers are prepared to pay in future is determining our prices today.

This is also the reason drilling more gas won’t reduce prices, as the exporters will simply expand as more gas becomes available and prices will remain connected to the higher overseas prices.

Ross Gittins, writing in the Sydney Morning Herald last year, belled the cat on the gas industry’s big con. “In truth, there will be no shortages of gas in any state, just a requirement to pay the higher … price,” he wrote.

He continued, arguing that the “…argument that increased production in NSW could hold down NSW gas prices is economic nonsense”.

The manufacturing sector knows this all spells trouble and have been warning 100,000 jobs are at risk, because they can’t access gas contracts or can’t access it at prices that keep their businesses viable.

There are a number of solutions available to address the problem of rising gas prices and none involve drilling more coal seam gas in NSW because that won’t change a thing.

A national interest text on exports or a domestic gas reservation policy as flagged by the Greens and Labor might be part of the solution, but the detail must address projects already approved or it won’t offer a solution for manufactures in the short to medium term.

There is also a need for governments to help households and businesses transition away from gas that, regardless of policy settings, will continue to become more expensive. Fast-tracking the development of industrial scale renewable power solutions is essential for manufacturing.

What we can’t have in NSW is a situation where agricultural land, water, the pristine natural environment and our manufacturing sector is destroyed so a small group of gas exporters can turn a higher profit selling overseas.

Launched in 2004, New Matilda is one of Australia's oldest online independent publications. It's focus is on investigative journalism and analysis, with occasional smart arsery thrown in for reasons of sanity. New Matilda is owned and edited by Walkley Award and Human Rights Award winning journalist Chris Graham.