21 Jul 2014

The Australian oil and gas industry welcomes findings of a new report from major customers that highlight the urgent need to remove regulatory constraints and increase production of natural gas across eastern Australia.

The gas customer groups commissioning the report, Gas market transformations – Economic consequences for the manufacturing sector, say that increasing natural gas supply and putting downward pressure on gas prices is critical to the competitiveness of manufacturing. It is also clear that gas customers no longer see gas reservation policy as a credible or workable solution to the challenges faced.

APPEA has for some time been highlighting that state government restrictions on industry activity will impact on gas supplies.  It is encouraging that customers now both recognise and are advocating for the removal of artificial supply restrictions.

APPEA is also very pleased that the report highlights the enormous economic benefit associated with the continued expansion of Australia’s from LNG industry. Australia currently has $200 billion worth of projects under construction and Australia is set to be the world’s biggest exporter of this cleaner burning fuel by 2018.

The report finds gas production is one of the highest value adding industries in the Australian economy, which reflects the technologically sophisticated and innovative nature of natural gas production.

The report says: “Given the high value-added contributions associated with the gas sector, summing the industry value added impacts for all sectors gives an overall net increase in GDP over the forecast period”.

Australia has plenty of gas available for both domestic and export markets.  By allowing market forces, rather than encouraging government intervention, to determine when and how Australia’s gas should be developed, these benefits can be realised to the benefit of all Australians.

Rising prices do not equate to market failure, which is why other policy prescriptions contained in the report are unnecessary.

Australian gas producers and customers have entered into at least sixteen gas supply agreements or other commercial arrangements across the eastern gas market since the end of 2012 (see Attachment 1).

The range and scale of these supply agreements suggest there is enough information available to allow supply contracts to be concluded between genuine buyers and sellers.

In addition to removing restrictions on gas supply, the best policy response from governments to assist manufacturers under to pressure to respond to changing market conditions will be to focus on initiatives that boost productivity and encourage investment, including via lower tax burdens, efficient regulation, ongoing investment in skills, and greater labour market flexibility.

This will give all companies – including those in the manufacturing sector – the best chance to adapt to structural pressures and increase their international competitiveness.

Moves to increase the transparency and efficiency of the eastern Australian gas market are under consideration as part of the development of the Australian Government’s Energy White Paper. Download PDF

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Chris WardMobile: 0408 033 422Email: >[email protected]