Contributed by Joe Montero
As opponents of coal seam gas (fracking) in the Northern Territory step up the fight against the possibility of resumption at the end of this year, the industry is claiming that it is necessary to do so, to counter the high price people are paying for the resource.
Eying the remote Beetaloo Basin, south of Mataranka, Gas companies have resurfaced the claim that the high price is determined by a shortage of supply. The two biggest players here are Santos and Origin Energy.
Bruce Robertson, an analyst from the Institute for Energy Economics and Financial Analysis, suggests the main reason why Northern Territorians pay more is that most of the gas is committed to being sold overseas under long term contracts.
The companies have a problem in that global prices have fallen because of over-supply in the market. Long term contracts, means that the companies are locked into lower returns and are seeking cheaper gas to increase their margins.
Gas companies are also being accused of acting as a cartel to increase prices so that Australians effectively subsidise the fall of returns from exports.
The industry has hit back by insisting that driving up the price is a supply shortage and that expanding the coal seam gas industry will fill the gap and lower the price.
Critics point out that the shortage has been deliberately created by diverting a large portion of the supply to the export market and there is no good reason to expect that an increased supply would not go the same way.
By forming a cartel, the companies have been able to extract more out of Australians, precisely by minimising supply. The problem is not market derived, but the result of monopoly power leading to monopoly prices.
To lower the price in these conditions, it is necessary for the government to step in and outlaw cartel behavior, impose a roof on monopoly prices and compel the redirection of existing gas production for the use of Australian consumers. Only when the needed domestic supply is secured, should consideration to exporting be given.
Bruce Robertson adds that the high cost of production in the territory, brought about by its isolation and the the high cost of transportation to bring the resource to the necessary East Coast market, makes production in the Territory uneconomical, unless Australians are made to subsidise it. There are simply not enough consumers in the Territory itself.
“Producing high cost Northern Territory gas, which is very high cost gas, about $7.50 a gigajoule, is no way to bring down the cost of gas on the east coast of Australia,” he said.
He adds that the push for increased production is being driven by companies that contracted more than the current supply for export and now face the dilemma of meeting the terms of these contracts.
Unless something is done about it, Australian consumers will be made to continue to subsidise the industry by paying far more than they should for the gas they use.