The federal government's gas-fired recovery plan won't deliver the cheaper gas manufacturers need to remain viable, industry warns, as Prime Minister Scott Morrison inks a new deal with liquefied natural gas exporters.
Mr Morrison sealed a deal with Queensland LNG exporters to offer any uncontracted gas to customers in the domestic market at a "reasonable price" that excludes international shipping costs before it is exported.
The Morrison government has renewed its deal with LNG exporters to ensure local buyers are offered first opportunity to buy uncontracted gas production. Credit:Michele Mossop
The deal effectively renews an agreement the Turnbull government secured in 2017 and inserted a new requirement for LNG exporters to give first offer to the domestic market at all times, and not just in the event of a shortfall.
It comes nearly three years after Australian LNG producers gained access to the more expensive international market. In that time gas contract prices rose from $4 to $5 a gigajoule to $8 to $10 a gigajoule.
"Gas is critical to our economic recovery and this agreement ensures Australian businesses and families have the gas supply they need at the cheapest possible price," Mr Morrison said.
The Energy Users Association of Australia (EUAA) said the deal was welcome, but it didn’t include price controls to bring affordable gas on the market.
"There is so much more that needs to be done to bring down domestic gas prices to a level where manufacturers can be competitive," EUAA chief executive Andrew Richards said, adding new east coast gas supply projects would be crucial as well.
He argues the "reasonable price" offer to domestic buyers should not only exclude shipping, but also costs associated with LNG export processing – which is not required to supply domestic gas.
Mr Morrison said in September the government plans for the gas led recovery would "strengthen price commitments" for the domestic market.
Mr Morrison rejected calls for price controls, arguing market intervention would "quarantine" gas users from price drops on the international market.
"We're a market economy. What we want to see is the market operate well here and we don't want to put a floor on the price," he said.
Resources Minister Keith Pitt said government plans would "increase supply, ensure competition in the market and give customers and suppliers a level playing field".
National employer lobby Ai Group also welcomed the heads of agreement, but chief executive Innes Willox said it won't "drive a gas-led industrial recovery".
There was "considerable disappointment" in industry that the government's gas initiatives would only deliver a "relatively negligible contribution" to lowering gas prices, Mr Willox said.
Australian explosives and fertiliser manufacturer Incitec Pivot and petrochemical company Qenos have warned their businesses are not sustainable without cheaper gas.
Australian Petroleum Production and Exploration Association chief executive Andrew McConville said the deal would deliver "competitive gas supply outcomes for customers and continue to encourage more investment in new supply".
Australian Workers Union national secretary Daniel Walton said in rejecting price controls the deal "sells out Australian manufacturing workers to benefit a handful of multinational giants who extract our gas and export it to Asia".
Labor energy spokesman Mark Butler said the deal was "another announcement with no delivery".
"Scott Morrison promised a price trigger for export controls last year and he has not delivered," he said.
Chief executive of the Gladstone LNG joint venture, Stephen Harty, said the export plants employ 600 workers and another 3000 work in gas production.
The new deal will deliver competitive local prices, he said, and the "Australian domestic gas market is undeniably better off because of the east coast LNG export industry," Mr Harty said.
Last year Australian east-coast gas prices dropped to $5 a gigajoule amid the disruption of COVID-19 and plummeting international demand. But energy demand driven by an icy northern hemisphere winter and gas supply shortages has in recent weeks seen a spike in the benchmark price for Asian LNG. Analysts now forecast LNG prices to average around $US8 a gigajoule for 2021, which may keep domestic prices elevated as well.
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