Gas prices remain high despite oil prices collapsing

27 Nov 2018

Despite international LNP prices falling, east coast gas manufacturers are speaking up about the continued high price of domestic gas, with spot prices still around 25% higher than export “netback” pricing.

Although there’s been a rapid drop in international oil prices, resulting in prices below $8/GJ, the unseasonally cool weather has driven up gas demand in Victoria from 450-500 terajoules a day to over 600T TJ/d, which was “the primary motivator behind the price lift”.

The discrepancy between local prices and international equivalents has left some manufacturers fuming, struggling with prices right at the top of or beyond the $8-$10/GJ range they say is bearable. Spot gas prices in Adelaide were $10.99/GJ on Monday, and $9.82 in Victoria, with Sydney prices slightly lower, according to the Australian Energy Market Operator.

A sharp increase in east coast prices well beyond netback prices in early 2017 caused the federal government to step in to introduce the Australian Domestic Gas Security Mechanism, which gave it powers to curb LNG exports if needed, to prevent local customers going short. The policy encouraged Queensland’s exporters to release more gas onto the domestic market, helping eliminate the premium by late 2017, but that gap looks now set to open up again unless east coast prices soften.

Federal Resources Minister Matthew Canavan has already decided not to impose controls on LNG exports in 2019 after the government struck an agreement with the Queensland LNG exporters at the end of September to maintain secure supplies of gas to the east coast.

In the ACCC’s latest report on LNG netback prices on November 16, it put netback prices at $11.20/GJ, while forward prices were pointing to above $12/GJ in January and February, the peak of the northern hemisphere winter, when LNG demand is at its highest. The further drop in oil prices since then points to a likely softening in the numbers in the watchdog’s next price report, due on Friday.

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