East coast gas exporters on Tuesday signed a formal agreement with the government to offer enough gas to meet to an expected shortfall for next year and 2019 “and any emerging additional shortfall”.
The agreement, to which Malcolm Turnbull was the government signatory, ties down arrangements reached in talks last week and follows estimates that the east cost market faces a shortfall of 54 petajoules (PJ) in 2018 and 48 PJ for 2019.
According to the estimates, there could be an extra shortfall of 53 PJ in 2018 and 54 PJ the following year.
The agreement is not specific on price, referring to “the good faith offering of gas to the domestic market on reasonable terms”.
It says that uncontracted gas won’t be offered to the international market unless equivalent amounts have first been offered to the local market “on competitive market terms”.
The government has made it clear the price shouldn’t be above the export price, ie the delivered price overseas less liquefying and shipping.
Speaking after the meeting Turnbull thanked the gas companies for their commitments and withdrew the government’s threat to impose export controls.
“By ensuring that there will not be a shortfall of gas next year, that means we will not be required to place restrictions on exports”, he said.
Before Turnbull met the suppliers on Tuesday, Labor’s resources spokesman Jason Clare said “the real test” would be whether the deal halved gas prices – a prospect Turnbull had held out six months ago.
“Still companies are being offered contracts of $15, $16, $17, $18 a gigajoule and all of the analyst reports over the last few days indicate that prices are expected to remain very high,” Clare told Sky.
“Now, if that happens, then Malcolm Turnbull’s failed. His promise to the Australian people to cut gas prices in half won’t have happened.”
But Energy Minister Josh Frydenberg, also speaking ahead of the meeting, told the ABC that in the last few months, as a result of Turnbull’s action, the spot price for gas had come down from about A$12 per gigajoule to about $8 per gigajoule.
“So action has been taken as more supply comes into the market, and I’m confident that we can maintain this momentum,” Frydenberg said. “But in order to get lower prices, particularly in those southern states, you need gas to be developed in those areas, because … the cost of transport can be more than $2 a gigajoule and this can add more than 10% to a residential gas bill in the state of Victoria.”
Tony Wood, director of the energy program at the Grattan Institute, said the government’s pressure had brought the companies to the negotiating table and therefore already had had an impact on availability and price.
Under the agreement, the east coast industry is to continue to discuss with the Australian Energy Market Operator the likely extent of the additional shortfall – including industrial, commercial and residential demand – and what measures can be taken to address it.
The LNG exporters will report periodically to the Australian Competition and Consumer Commission on sales, offers to sell and bids declined, and the terms and conditions of transactions.
The agreement reaffirms the government’s commitment to the development of new gas supplies including by the removal of various state and territory bans and restrictions, and by increasing incentives to open new sources of supply.
There have been suggestions that jurisdictions refusing to play ball could lose GST money.
Clare said that, at a national level, Labor’s approach was “that we support the responsible development of our gas reserves” but there needed to be a co-operative approach.
“If you want to see more of these gas reserves developed the way to do it is to work co-operatively with the States. Bring them together and talk to them, rather than berate them and attack them from the sidelines,” Clare said.
Authors: Michelle Grattan, Professorial Fellow, University of Canberra