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Time to pull the trigger on spiralling gas prices

August 3, 2021

It’s Time to pull the trigger on spiralling gas prices

The AWU has joined forces with a leading industry group to demand that the Federal Government act to immediately cap gas exports, with the nation’s manufacturing comeback being jeopardised by high gas prices.

In a joint letter to Resources Minister Keith Pitt, AWU national secretary Daniel Walton and Australian Industry Group chief executive Innes Willox say a spike in gas prices this year is creating a real risk there will be a domestic gas shortfall.

Dan Walton says the time for procrastination is over and the Government must pull the trigger on Australian Domestic Gas Security Mechanism, which limits producers from exporting when there is a shortfall in local supply.

“For a decade now, manufacturers operating in the most gas-rich nation on earth have struggled with some of the highest gas prices on earth,” Mr Walton says.

“Responding to this insanity, the Government has repeatedly invited the gas lobby for tea and scones to sort things out with a handshake deal. I think we can now safely call that approach an abject failure.

“Gas prices are now the highest they’ve been and factories stand at the brink of collapse. What possible reason could the Australian Government have for not pulling the only real trigger it has?

“What we really need long term are stronger measures to force the gas lobby to make affordable Australian gas available to manufacturers. Right now, however, the Government needs to pull that trigger.”

In their letter Mr Walton and Mr Willox say it is clear that other efforts (such as the code of conduct between gas users and exporters) cannot overcome the outsized impact of prices and demand from Asia in our export-dominated market.

“Australia is the world’s largest exporter of LNG and has abundant reserves of gas,” they say. “It is untenable that our domestic businesses are priced out of accessing this critical resource.

“During the pandemic, Australian manufacturers stepped up to the plate and responded to chaotic disruptions to global supply chains.

“Australia is now well-positioned to return to a leading role in the industry. But Australia’s manufacturing comeback is in danger of being jeopardised by high gas prices.”

The letter coincides with reports that wholesale spot prices briefly soared to $58 a gigajoule recently and remain more than triple their usual levels.

Mr Pitt claims the spike in prices is “due to several specific factors that are not expected to undermine the Government’s plans for a gas-fired recovery”.

But Mr Walton and Mr Willox point out the Government’s strategy is failing: “Gas prices fell dramatically in 2020, not due to new supply or the goodwill of gas companies, but due to a collapse in global demand. But in 2021, gas prices are spiralling.

“Over just the last month, gas spot prices have more than doubled in large parts of the country: going from $10.51 to $19.75 per gigajoule in Sydney, from $10.25 to $28 per gigajoule in Adelaide, and from $8.60 to a whopping $58.44 per gigajoule in Melbourne on Friday.

ACCC head, Rod Simms has repeatedly chastised gas exporters for over charging domestic users and for dragging its heels on the implementation of a voluntary code of conduct.

“For many months, the ACCC has pointed out that prices are too high – at the start of July, they estimated that our Asian trading partners are buying Australian gas for an export parity price of just $11.74 per gigajoule.

“Tens of thousands of Australian jobs either directly or indirectly rely on having affordable and reliable gas available for industry.”

The AWU has been campaigning for action on gas prices and the need for a domestic gas reservation policy since 2011.

Australia is the only gas exporting country in the world that doesn’t maintain a gas reservation policy that secures a small share of gas for domestic use by manufacturers, electricity generators, and households.

The ADGSM – a policy the government has yet to trigger – only guarantees gas being supplied into the market. This mechanism must be reformed to include a ‘price’ trigger that will ensure fair prices for domestic users. Such a trigger will held address concerns by industry and regulators such as the ACCC that gas exporters are playing games with Australia’s gas supplies.

Despite claims, it would be ruined by a gas reservation scheme, it is worth noting that Western Australia – a state that has a state-based reservation policy – has the lowest prices in the country while maintaining a large exporting industry.

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