PM challenged on claim intervention will halve gas prices

The Age, News 18/04/2017, picture by Justin McManus. Opposition Leader Bill Shorten visiting Qenos who is a manufacturer of polyethylene and relies on gas to power its plant. Shorten doing a doorstop in from of the Plant. Photo: Justin McManusWholesale gas prices should halve as a result of the federal government’s intervention in the export market, Prime Minister Malcolm Turnbull has claimed.
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The forecast was leapt on by Opposition Leader Bill Shorten, who called on Mr Turnbull to outline a time frame for the fall in prices, saying it would be little more than “hot air” if gas companies did not confirm relief was on the way for domestic industrial buyers.

‘s massive liquefied natural gas export sector is back at the centre of political debate after the Turnbull government on Thursday slapped export restrictions on east coast producers who have strangled local supply to fulfil international contracts.

An “n domestic gas security mechanism” will allow export controls to be imposed on companies when a gas supply shortfall is identified.

As some investors sold off shares in LNG companies in response to the surprise intervention, gas industry group the n Petroleum Production and Exploration Association said short-term export restrictions were “alarming” and could create “sovereign risk”.

Mr Turnbull said n manufacturers were being quoted gas at up to $20 a gigajoule to lock in supply contracts. “That is way above the export price,” he said.

Recent data suggests Japanese industry buys n LNG at a “landed price” of about $10 to $11 a gigajoule, which includes shipping, while in the United States industrial buyers pay as little as $4 per gigajoule.

Mr Turnbull said the reason – which is on course to be the world’s biggest LNG exporter – paid more for our own gas was that exporters were “drawing out of the domestic market” to satisfy international supply contracts.

He said the wholesale price “would be less than half $20” if manufacturers were paying the export parity price.

“This is not saying that all gas prices will be halved as a result of these changes,” he said, pointing out that the wholesale price component of a household gas bill was about 15 per cent of the total.

But Mr Shorten sought to increase pressure on the government on Thursday, asking for proof of the promised price relief.

“Without the gas companies confirming that, what Mr Turnbull is saying is just hot air, just words,” he said.

“I want these same gas companies to put their hand up and say, ‘Yes, gas prices will halve – Malcolm Turnbull is right.’ If the gas companies won’t verify Mr Turnbull’s extravagant promises of halving gas prices, Turnbull has a case to answer to the n people.”

There were early signs that LNG companies were not falling in behind Mr Turnbull.

Pacific LNG, owned by Origin Energy and ConocoPhillips, questioned the Turnbull government’s approach.

Its chief executive, Warwick King, said the company “does not support additional regulation such as export permits, as these sorts of interventions will not increase supply or decrease price in the near or long term”.

As Santos shares dived nearly 6 per cent and Origin Energy slumped 4 per cent in opening trade, Santos told the n Stock Exchange it was seeking clarification on how proposed supply restrictions would work in practice and how prior proposals put to government by the industry were being considered.

The company did commit to increasing domestic supply in future.

“Moving forward, Santos will supply more gas into the n domestic market than it purchases for its share of LNG exports,” it said.

n Petroleum Production and Exploration Association chief executive Malcolm Roberts said: “Restricting exports is almost unprecedented for . At a time when we need billions in new investment to create more gas supply, any intervention that creates sovereign risk is alarming.”

The association repeated its belief that the key to easing the supply crisis was for states to open up more coal seam gas fields rather than bow to rural protesters and environmentalists with moratoriums such as the one in Victoria.

Manufacturers welcomed the intervention.

n Industry Group chief executive Innes Willox said: “This is a very positive step … it is just a pity that it has got to this stage, where a lot of businesses are facing incredibly steep rises in their gas and electricity bills, and we hope that over the time ahead those bills can come down.”

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