Fossil Fool Bulletin • 5 November 2019
Gas consumers in Queensland are currently paying 51% more than export parity prices according to the ACCC, while recent gas developments have brought short term booms but resulted in massive wealth destruction for small towns.
IEEFA gas analyst Bruce Robertson spoke at an event attended by locals at the Bundaberg Civic Centre in Queensland on October 29 about the increasing cost of gas for consumers and how further development of Queensland’s fracking and gas industries will not reduce prices while bringing marginal long-term benefits for locals.
“Queensland gas consumers are paying 51% more for their gas than consumers of Queensland gas produced locally and shipped directly overseas are paying much less, according the ACCC,” says Robertson.
“And since gas sets the price for electricity in Australia, every electricity consumer is feeling the heat of blown-out bills.”
The federal government commissioned the ACCC to produce a spot gas price series designed to compare domestic prices to those of Australia’s customers in Asia while allowing for the increased costs of exporting gas.
The spot gas price series shows that as at 25 October 2019 when the most recent data was released, the ACCC “netback” price – calculated by taking the delivered price of LNG and subtracting the costs of liquefying natural gas and shipping it to the destination port – was just $5.19 a gigajoule (GJ) yet Queensland customers were paying $7.82/GJ for their gas.
“Queensland’s gas industry has a proven track record of price gouging consumers and destroying wealth, while fracking coal and shale to export LNG has negative economic consequences for locals,” says Robertson.
“Prior to 2015, Queenslanders had a stable domestic market for gas with reasonable prices of $3-4/GJ.
“With the advent of the construction of the six trains at Gladstone, domestic gas prices increased rapidly to peak at $21/GJ in early 2017. Contract prices now stand at between $8-12/GJ according to the ACCC.
“That makes Queensland gas prices globally uncompetitive.”
Robertson says there are other destructive costs affecting locals, using the Gladstone Liquefied Natural Gas Project as a case study.
“There was a five-year construction period at Gladstone then the first shipment of coal-seam LNG left Gladstone bound for Asia in 2015,” says Robertson.
“With construction finished, locals today are witnessing a very active mortgagee in possession market and an oversupply of dwellings, townhouses and apartments, with value declines in some cases of up to 75%.
“The gas industry has created more destruction than boom.”
Robertson asserts Queenslanders are seeing a fraction of the royalties promised by the gas industry for existing fields, and despite earlier promises, gas companies are paying zero corporate tax.
“The Queensland government is still courting gas production with an eye on developing coal seam gas in the Galilee and Bowen basins in Queensland,” says Robertson.
“The coal seam gas sector however is also not going to give back to Queensland.”
Robertson explains new fracking fields are high cost. Instead of producing gas between A$2.20 and A$2.70 a gigajoule as the operators expected, they produce gas between A$3.65 and A$6.40 a gigajoule, making it very expensive gas.
The fracking industry has misjudged the costs, both in terms of capital – as it is very expensive to build and operate the plants – but also in terms of what the fields actually produce. Operators are discovering the wells decline more quickly than expected, and fields produce less gas and more water, increasing costs.
“Domestically, gas is no longer a competitive fuel for electricity production in Queensland and its usage is falling,” says Robertson. “To support a loss-making industry that has failed to supply Queensland consumers with gas at a reasonable price or pay its fair share of royalties and tax is total policy failure.”