Photo by: Bloombeg
PERTH (miningweekly.com) – The Australian Competition and Consumer Commission (ACCC) has called for the development of more gas resources to combat high gas prices on the Australian east coast.
Speaking at a conference in Sydney, ACCC chairperson Rod Sims said that there was an urgent need for new and more diverse sources of gas supply into the domestic market.
“New sources of supply will assist in ameliorating the supply uncertainty for downstream gas users and put downward pressure on prices in the market.”
Sims noted that there were some encouraging signs of smaller explorers and developers either seeking to develop gas previously deemed too difficult to develop or teaming up with customers to develop new gas sources.
However, he added that reforms to increase liquidity in trading markets required more gas and, importantly, increasingly diverse sources of gas from basins located close to markets in the south where much of the domestic demand was.
“The best-designed trading markets will falter without gas to trade,” Sims said.
However, he warned that any new entrants into the gas market would face a number of hurdles, including the falling oil price, negative sentiments in financial institutions about the sector, which was curtailing the finance available to pure gas explorers and developers, and the relatively high barriers to entry, with geological risk overlain with large upfront capital costs and long development timeframes.
“Further complicating this picture for new entrants and existing players is the spectre of regulatory uncertainty and state and territory-based moratoria, which are making new exploration increasingly risky or stopping development,” Sims said.
“If the basic exploration and appraisal activity required to bring new gas to the market is significantly reduced for a significant amount of time, at some point the market is going to face declining production from mature fields, which will not be replaced in time to meet demand.
“In turn, this will make other market reforms more difficult.”
Australian Petroleum Production and Exploration Association (Appea) CEO Malcolm Roberts echoed Sims’ call for policy changes to enhance gas supply in the eastern Australian market.
“While attention is often focused on market conduct and structure, the ACCC is right to indicate that a more competitive market requires removing barriers to developing gas.”
Roberts noted that analysts were becoming increasingly concerned by the widening gap between local demand and local supply in states such as New South Wales and Victoria.
New South Wales already imported some 95% of its gas.
“There is a risk we will see an artificial shortage of supply in those states if development of new local reserves is blocked. The commercial climate for exploration and development is already difficult. Fewer onshore exploration wells were drilled in 2015 than at any other time in the last 20 years,” Roberts said.
“There is an urgent need for policies that provide greater certainty, support exploration and reduce exploration and development costs.”
The ACCC was currently compiling a report on the East Coast Gas Inquiry, which was due to be delivered to Small Business Minister and Assistant Treasurer Kelly O’ Dwyer in April.
The gas inquiry would consider the competitiveness of wholesale gas prices and the structure of the upstream, processing, transportation, storage and marketing segments of the gas industry.