Australians are facing big jumps in energy prices. But not all Australians will feel the same pain thanks to an unfair policy.
Australians are preparing to raise electricity prices as coal and gas costs rise, but not all Australians face the same pain.
While the rise in prices is partly attributed to the Ukrainian war, which has pushed up international gas and coal prices, some may be confused as to why Australians also have to pay more.
Australia is the world’s largest exporter of liquefied natural gas (LNG) that sends 80 million tonnes of gas abroad a year.
Despite this, the Australian Energy Regulator (EAR) will transfer strong increases to the reference energy price from July, bringing prices up to 18.3 per cent in NSW, 12.6 per cent in Queensland and 9.5 per cent in South Australia. Some consumers may receive an additional $ 250 a year.
Experts blame it for not creating a gas reserve, leaving aside gas for use in Australia, when major LNG export projects to Queensland were approved. This has made Australians on the East Coast more vulnerable to rising prices abroad.
It is a different story in Western Australia, where gas is much cheaper, in part because the state has a policy of gas reserves, which dictates that the equivalent supply is about 15 per cent of the gas produced for export. must be provided to local consumers.
This has led to a significant difference in gas prices between the east and west coasts.
On the East Coast, spot gas prices have risen 529% over two years, from an average of $ 4.83 a gigajoule on May 1, 2020 to about $ 30.38 this month. show Gas Trading Australia data.
In comparison, price increases in WA have been more modest, rising by about 160 percent, from an average of $ 2.13 a gigajoule on May 1, 2020 to about $ 5.55 expected for June 2022.
Gas Trading CEO Allan McDougall said the rise in WA prices was also not due to rising overseas prices.
“It is mainly due to the expiration of long-term contracts with North West Shelf Gas and the reduction in production of this facility,” he said.
McDougall said he only expected prices to rise slightly from the current $ 5.50 per gigajoule in WA.
A graph from the March 2022 Australian Energy Market Operator (AEMO) Gas Opportunity Statement highlights the large amount of Australian gas shipped overseas compared to what is used in the country.
Energy finance analyst at the Institute for Energy Economics and Financial Analysis (IEEFA) Bruce Robertson said gas prices were rising despite falling demand for gas in Australia. He said prices will continue to rise in the coming months, putting many companies at risk.
“A lot of the gas-dependent industry will break down in the next 12 months,” he told news.com.au.
Robertson said there was no reason why Australians living on the east coast could not have access to gas at a more reasonable price.
“This is once again making our governments aware of both persuasions that have failed us,” Robertson told news.com.au.
He said allowing companies to extract more gas, as some have suggested, had not worked to lower prices.
“It won’t work because you only have a few companies that control the market and set the price,” he said.
Although the Morrison government’s “big stick” reforms initially brought down prices, the war in Ukraine had seen the end of it.
“They have now decided to raise prices again, pushing up very high prices,” Robertson said.
“Naturally, Australia should have cheaper prices because the industry is heavily subsidized and we have opened up new areas for exploration, and yet the gas industry is returning the favor by charging Australians too much for gas.
“It will never end until a national gas reserves policy like Western Australia has been introduced.”
Australian companies at risk
Weston Energy, a natural gas wholesaler and distributor, drew attention to the problem amid its collapse this month.
Weston had contracts to supply gas to more than 400 companies and government agencies along the East Coast, including NSW, ACT, South Australia, Victoria and Queensland.
However, it was forced to close after an unprecedented rise in coal and gas prices over the past month.
Weston Energy CEO Garbis Simonian said the closure of several coal-fired power plants had drastically increased gas energy demand at the same time as the war in Ukraine had seen international gas prices rise.
This meant that Weston was unable to fulfill its contracts with companies to supply gas at the price it had previously agreed.
Simonian blamed the situation on a “real political failure” in Australia.
“The fact that Australia is the world’s largest exporter of coal and gas, and yet our domestic prices are at unprecedented high levels, shows a real policy failure,” Simonian said in a statement.
“The rapid rise in energy prices has put hundreds of Australian companies and thousands of jobs at risk.
“Circumstances now affecting the Australian energy markets have long been predicted, but little has been done to prepare Australian energy producers and users for this impact.”
“It’s our gas, it doesn’t belong to multinationals”
Outgoing South Australian Senator Rex Patrick has been a vocal critic of the gas situation in Australia and the Morrison government has told him that options for establishing a national gas reserves scheme would be discussed with the states. and territories as part of a review to be completed in February 2021.
He said he had negotiated the review with the government in exchange for his support for the government’s Stage 3 tax cuts.
A letter dated July 2019 from then-Finance Minister Mathias Cormann, seen by news.com.au, confirmed that the government said it would advance the review of the Australian Domestic Gas Security Mechanism, which it gives to the Minister. of Resources the power to restrict gas. exports in case of critical gas shortage, to make sure it fits its purpose and offers the lowest possible prices.
Patrick said other aspects of the review were delivered, including a price review, but the exploration of a possible gas reserve was only consulted and the review on this did not appear to have been completed.
“This is the gas of Australian citizens and it is a betrayal of the government to allow this gas to go offshore and cause our manufacturers to stop trading and increase the cost of living for our consumers,” he told news.com .au.
While rising energy prices are blamed on international factors, Patrick said the government had not put in place a mechanism to isolate Australia from these price hikes.
“We have more gas than a stick can put in; the problem is that most of it is exported at world market prices and that makes Australians pay a lot more for gas than they should.
“It’s our gas; it does not belong to these multinationals. We have granted them a license to export this finite resource, and in return they and the government must comply with their social license obligations. “
Patrick said it was the Labor government under Prime Ministers Julia Gillard and Kevin Rudd that had not made a gas reserve when six LNG trains were approved at Gladstone, and has now called on the new Labor government to fix the problem. and implement a booking scheme similar to that of Western Australia.
“This is a crisis started by the Labor government and they have an obligation to do something about it now,” Patrick said.
“A complex issue”
Former Australian Consumer Affairs and Competition (ACCC) Chairman Rod Sims highlighted the complexity of the Australian gas market during an interrogation in the Senate Economic Affairs Committee on 17 February.
Mr Sims said the government’s “big stick” legislation appeared to have worked to some extent, although Australians were still paying more.
“If you look at the countries that do not produce much gas, you see that their prices are much higher than ours,” he told the committee.
“If you look at countries that are massive exporters of gas, like us, you see that our prices are probably a little high.”
Sims said he thought companies had realized they could not continue to put prices in Australia to match those abroad as the government could take action.
However, he noted that before LNG producers went online, manufacturers had been paying about $ 4 per gigajoule for gas, but that had risen to $ 10 or $ 11 earlier this year.
“A lot of them can’t handle it. This is a really complex issue.”
Read related topics: Cost of living