ACCC publishes gas export parity prices

The ACCC has today commenced publication of LNG netback prices on its website.

An LNG netback price is an export parity price that a gas supplier can expect to receive for exporting its gas. It is calculated by taking the delivered price of LNG and subtracting the costs of liquefying natural gas and shipping it to the destination port.

It represents the price that a gas supplier would expect to receive from a domestic gas buyer to be indifferent between selling the gas to the domestic buyer and exporting it.

The LNG netback price is not the sole factor that influences domestic prices in the east coast gas market.

ACCC chair Rod Sims said individual prices paid by gas users will, for example, also reflect other factors that may be relevant to their circumstances, including the terms and conditions of their gas supply and any applicable transportation or retailer charges.

“The prices paid by domestic gas users could also depend on demand and supply,” Mr Sims said.

“If there were sufficient additional gas produced to fill existing LNG train capacity, excess gas available to the domestic market could see prices below the LNG netback price.”

When the current ACCC gas inquiry commenced in April 2017, many domestic gas buyers in the east coast were receiving offers for gas supply at prices that were well in excess of LNG netback prices, Mr Sims said.

“This was a clear sign to us the gas market in the east coast was not operating effectively,” Mr Sims said.

“Domestic gas buyers clearly should not have to pay more for gas produced in Australia than the overseas buyers.”

The published LNG netback price series will assist east coast gas users to identify trends in LNG netback prices and to estimate an indicative reference price of gas for supply over the near term.

The ACCC is making this information publicly available to help fill an information gap that has existed in the east coast gas market since LNG producers in Queensland began to export gas in 2015.

“Since the linking of the east coast and international gas markets, gas users have not had access to readily available information about export parity prices and how they are calculated,” Mr Sims said.

“Gas users have regularly commented to us that our publication of gas prices and LNG netback prices in our interim gas reports helps them in their gas supply negotiations.

“Publication of LNG netback prices on our website will further improve gas price transparency and reduce the information imbalance between gas buyers and sellers.”

The series shows LNG netback prices are volatile and can change significantly over time.

LNG netback prices have increased considerably since the start of the ACCC’s gas inquiry, driven by an increase in global demand for gas and a weaker Australian dollar.

The average LNG netback price at the Wallumbilla Gas Supply Hub has been $10.69/GJ so far in 2018, compared to $7.27/GJ over the same period in 2017 and is currently expected to be on average around $12.40/GJ over the same period in 2019.

“While industry analysts expect international LNG prices to ease over time with an increase in global LNG supply, conditions in the east coast gas market remain very challenging for domestic gas buyers, particularly commercial and industrial gas users,” Mr Sims said.

As the ACCC reported in July, there remains an urgent need to produce more lower-cost gas, particularly in the south, to lower prices to gas users.

“While commissioning import terminals can bring additional quantities of gas into the south, greater benefit can be gained from producing additional, lower cost gas,” Mr Sims said.

“This could mean that instead of paying import parity prices or paying to transport gas from Queensland, domestic gas users in the south could be paying prices that are closer to the cost of producing additional gas – a difference of up to about $4/GJ based on current estimates.”

“We continue to urge state governments to adopt policies that consider and manage risks of individual gas developments rather than implementing blanket moratoria and regulatory restrictions.”

The published forward LNG netback price series is likely to be most useful for gas users that are negotiating gas supply with a term of up to two years.

The ACCC recognises that a number of gas users are seeking to enter into longer term agreements for supply in the next five to 10 years.