Another step toward greater customer confidence in the Australian natural gas market has been achieved this week, with the implementation of new disclosure rules for pipeline transportation costs.
This disclosure regime should help provide confidence to buyers as they negotiate terms with pipeline and gas network owners.
As forecast by the industry about six years ago, tightening supply conditions in the East Coast gas market and the (now) outstanding success of the new Queensland-based liquefied natural gas (LNG) export operations at Gladstone have put upward pressure on prices in the past 2-3 years.
The Federal Government initiated a gas transportation review as one of a number of initiatives to try to ease supply constraints and put downward pressure on prices.
As we reported last month, with the positive engagement of the gas industry, there have been strong improvements on both supply and price in the past several months.
A revised framework for gas transport information disclosure was recommended to the Council of Australian Governments Energy Council following a study by former Victorian Treasury Secretary Dr Michael Vertigan. The new disclosure rules will be overseen by the Australian Energy Regulator – an independent offshoot of the Australian Consumer and Competition Commission (ACCC).
The aim of the framework is to help customers negotiate with pipeline companies on ‘practical’ gas transport terms which reflect a “workably competitive market”.
In the past, anti-gas critics have complained that end-users have paid more than they should have for natural gas, partly because of the costs of transportation. A lack of choice and an inability to ‘pull apart’ the costs made it difficult for buyers to negotiate with confidence, critics said.
The industry has embraced the new rules – though holding firmly to its confident standpoint that transportation costs in Australia are internationally competitive and are not a significant component of the end price paid by gas users.
APA Group’s CEO has pressed this case assertively in the past two years, often amid a lot of misleading information, particularly from activists intent on using any tactic to tear down the gas industry – as we noted in a letter published by the Australian Financial Review.
The Australian Pipelines and Gas Association (APGA) said pipeline and network operators had this week begun publishing new services and pricing information which would help customers in their commercial negotiations.
APGA Chief Executive Steve Davies said the new information would certainly add transparency and efficiency to negotiations.
“And it will help ensure that gas transmission prices remain a small component of the overall price of gas delivered to homes and businesses,” Mr Davies said.
He pointed to the Gas Price Trends Review published by the Department of Environment and Energy a fortnight ago, which he said confirmed that gas transmission charges accounted for an average of only 7% of the total gas bill for residential and commercial customers.
“And it is well under 15% for most large industrial customers and power generators.”
Mr Davies said there were many variables in gas transport contracts, meaning no two were identical.
Contract duration, volumes to be transported, load profile and credit rating of the customer all had varying bearing on final contract terms, he said.