ACCC head argues for increase in gas supply sources

THE east coast gas market has experienced a triple-whammy of local and international events and changes, Australian Competition and Consumer Commission chairman Rod Sims told the Australian Domestic Gas Outlook Conference in Sydney yesterday.

"First was the introduction of LNG with its huge impact on the demand for gas," Mr Sims said. "Second, oil prices have fallen faster and further than nearly anyone thought, which is reducing the incentive and ability to explore for gas.

"Third, regulatory uncertainty and exploration moratoria are making life very difficult for the upstream sector.

"In this environment, commercial and industrial gas users particularly have had a difficult time."

Speaking ahead of the ACCC's formal report to government, Mr Sims argued more sources of gas supply for south-eastern Australia in particular were needed to constrain gas prices.

"The key point is that the effect of the level of LNG netback prices on domestic gas prices depends more than is realised on the level of competition in the market," he said.

"With many gas suppliers competing for business, their alternative is to send gas to Queensland for export.

"With few gas suppliers competing for business, you need to ask why would they sell their gas for less than the buyers' alternative of buying gas from Queensland?

"The difference in the domestic price of gas, therefore, depends on the level of competition to supply gas."

Mr Sims also said the government needed to ensure regulation, or the threat of regulation, was effective in its application to natural monopolies such as gas transmission pipelines.

"This currently does not seem to be the case," he said.

"Likely ineffective regulation of gas transmission pipelines is of particular concern because monopoly pricing can lead to inefficient downstream investment decisions and can limit investment in upstream exploration."