High gas prices for long-term east coast contracts persist
Lower long-term oil and gas prices – predicted by global majors BP and Shell – should be good news for domestic gas pricing, but major gas suppliers and retailers are still failing to pass on cheaper rates, say big chemicals companies Incitec Pivot and Qenos.
Since oil majors BP and Shell have slashed their forecast long-term price of Brent crude from $US55 and $US60 per barrel respectively – down from $US70 or more – major gas consumers have been expecting gas prices to come down as they are typically pegged to Brent.
But the major gas retailers and producers in Australia are sticking to high prices, offering Incitec Pivot and Qenos long-term gas contracts at between $8-$9 a gigajoule when the spot prices have dwelled around $5 earlier this year.
Jeanne Johns, chief executive officer of Incitec Pivot, said the spot price reductions don’t mean much for business as they need long-term contract prices to make investment decisions.
“If the LNG price is going to be low for the next four years, this lower price should inevitably be reflected in more competitively priced long-term contract offers for domestic gas.
Stephen Bell, chief executive of petrochemical company Qenos, agrees, calling for the long-term gas prices to match the lower prices.
“The prices aren’t coming down anything like the oil and gas prices we’re seeing.
“You can get getter pricing in the near term but not in the long term which is what you need to make investment decisions.
“In the near term you can get gas for below $7 but for longer-term contracts they’re asking for $8-9 dollars which doesn’t allow us to compete internationally.”
The Morrison government warned gas producers and retailers in February to pass on cost savings after a report by the Australian Competition and Consumer Commission found prices were at least 25 per cent above an export equivalent price.
While the ACCC half-yearly gas report found the east coast gas supply crisis had eased slightly in 2020, there were still concerns about the long-term supply in southern states unless more projects were brought online in Victoria and NSW.
The report also accused LNG producers of “warehousing” reserves and not bringing gas to market, which has kept prices high for businesses and consumers.
The ACCC report found prices offered to gas buyers on the east coast have remained in the range of $9-$12 a gigajoule and have not reflected the sharp softening in LNG export prices.