Why gas prices in WA are cheaper than on the east coast

Australians are facing huge jumps in their energy prices. But not every Aussie will feel the same pain thanks to unfair policies.

Australians are bracing for higher electricity prices as the costs of coal and gas rise – but not every Aussie faces the same pain.

While the rising prices are partly attributed to the war in Ukraine, which has pushed up international gas and coal prices, some may be confused as to why Australians are also paying more.

Australia is the world’s largest exporter of liquefied natural gas (LNG) transporting 80 million tons of gas overseas annually.

Despite this, the Australian Energy Regulator (AER) will pass significant increases in the benchmark electricity price from July, pushing prices up to 18.3 percent in NSW, 12.6 percent in Queensland and 9.5 percent in South Australia. Some consumers may be plagued with an extra $250 per year.

Experts blame the failure to make a gas reservation – setting aside gas for use in Australia – when major LNG export projects were approved in Queensland. This makes Australians on the east coast more vulnerable to price increases abroad.

It’s a different story in Western Australia, where gas is much cheaper, in part because the state has a gas reservation policy, which requires a supply equivalent to about 15 percent of the gas produced for export to be delivered 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 are up a staggering 529 percent in two years, from an average of $4.83 per gigajoule on May 1, 2020 to about $30.38 this month, data from Gas Trading Australia shows.

In comparison, price increases in WA were more modest, increasing by about 160 percent, from an average $2.13 per gigajoule on May 1, 2020 to about $5.55 forecast for June 2022.

Allan McDougall, general manager of Gas Trading, said the rise in WA’s prices was also not due to rising prices abroad.

“It’s mainly due to the expiration of long-term contracts with North West Shelf Gas and the reduced production of that facility,” he said.

Mr. McDougall said he only expected prices to rise slightly from the current $5.50 per gigajoule in WA.

A chart in the Australian Energy Market Operator (AEMO) Gas Statement of Opportunities March 2022 highlights the vast amount of Australian gas shipped abroad compared to what is used in the country.

Energy finance analyst Bruce Robertson of the Institute for Energy Economics and Financial Analysis (IEEFA) said gas prices rose despite demand for gas in Australia falling. He said prices would continue to rise in the coming months, putting many companies at risk.

“A lot of gas-dependent industry will go out of business in the next 12 months,” he told news.com.au.

Robertson said there was no reason why Australians living on the east coast should not have access to more reasonably priced gas.

“This highlights once again that our governments of both convictions have been abandoned,” Mr Robertson told news.com.au.

He said allowing companies to extract more gas, as has been suggested by some, hadn’t worked to lower prices.

“It won’t work because you only have a few companies controlling the market and setting the price,” he said.

While the Morrison government “big stick” reforms initially caused prices to fall, the war in Ukraine had put an end to that.

“They have now decided to start gouging again, which has resulted in prices being very high,” said Mr Robertson.

“Of course 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 overcharging Australians for gas.

“It will never end until we have a domestic gas reservation policy in place, just like Western Australia.”

Australian companies at risk

Weston Energy, a wholesaler and distributor of natural gas, drew attention to the problem during its collapse this month.

Weston had contracts to supply gas to more than 400 companies and government agencies along the East Coast, including in NSW, ACT, South Australia, Victoria and Queensland.

However, it was forced to close after an unprecedented rise in coal and gas prices in the past month.

Weston Energy director Garbis Simonian said the shutdown of several coal-fired power plants had dramatically increased demand for gas-fired power, while the war in Ukraine had seen international gas prices rise.

This meant that Weston could not fulfill its contracts with companies to supply gas at the previously agreed price.

Simonian blames the situation on a “true policy failure” in Australia.

“The fact that Australia is the world’s largest exporter of coal and gas and yet our domestic prices are at unprecedentedly high levels points to a real policy failure,” Simonian said in a statement.

“Rapidly rising energy prices have put hundreds of Australian companies and thousands of jobs at risk.

“The conditions now plaguing Australian energy markets have been anticipated for some time, but little has been done to prepare Australian energy producers and consumers for this impact.”

‘It’s our gas, it’s not from multinationals’

Outgoing Independent Senator for South Australia Rex Patrick is an outspoken critic of Australia’s gas situation and was told by the Morrison government that options for establishing a national gas reservation system would be discussed with states and territories as part of a review of in be ready in February 2021.

He said he had negotiated the review with the government in return for his support of the government’s Phase 3 tax cuts.

A July 2019 letter from the then Chancellor of the Exchequer Mathias Cormann and seen by news.com.au confirmed that the government said it would bring forward the review of the Australian Domestic Gas Security Mechanism, which gives the Minister for Resources the power to limit gas. export in the event of a critical gas shortage, to ensure it was fit for purpose and at the lowest possible prices.

Mr Patrick said other aspects of the inquiry had been provided, including a price inquiry, but the exploration of a potential gas reservation had only started in consultation and the inquiry on the matter does not appear to have been completed.

“This is gas from Australian citizens and it is treason for the government to let that gas go offshore and bankrupt our manufacturers and drive up the cost of living for our consumers,” he told news.com.au.

While rising energy prices are attributed to international factors, Patrick said the government had failed to put in place a mechanism to isolate Australia from those price increases.

“We have more gas than you can control – the problem is that most of it is exported at world market prices and that means Australians are paying a lot more for gas than they should.

“It’s our gas; it’s not from these multinationals. We give them a license to export this finite resource and in return they, and the government, must in turn meet their social licensing obligations.”

Patrick said it was the Labor government under Prime Ministers Julia Gillard and Kevin Rudd that failed to secure a gas reservation when six LNG trains were approved at Gladstone, and he has now called on the new Labor government to address the issue. and implement a reservation system similar to that of Western Australia.

“This is a crisis initiated by the Labor government and they are obliged to do something about it now,” Patrick said.

‘A complex issue’

Former chairman of the Australian Competition and Consumer Commission (ACCC) Rod Sims highlighted the complexity of the Australian gas market during questioning in the Senate Economics Legislation Committee on Feb. 17.

Sims said the government’s “big stick” legislation seemed to be working to some extent, although Australians were still paying more.

“If you look at countries that don’t produce much gas, you see that their prices are much higher than ours,” he told the commission.

“If you look at countries that are huge gas exporters like us, you can see that our prices are probably a bit high.”

Mr Sims said he thought businesses realized they couldn’t continue to match prices in Australia to those abroad because the government could take action.

However, he noted that before LNG producers came online, manufacturers were paying about $4 per gigajoule for gas, but this had risen to $10 or $11 earlier this year.

“Many of them can’t handle that. This is a very complex issue.”

Read related topics:Cost of living

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