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Gas reservation policy would reduce electricity prices in Australia

July 08, 2019

Key Takeaways:

Gas sets the price of electricity in Australia because it is the highest cost producer in the electricity market. As a result, Australia’s high electricity prices are caused by high gas prices.

Prior to 2014, the east coast of Australia enjoyed low cost and stable domestic gas supply with reasonable prices of $3-4/gigajoule. Since then, domestic gas prices in Australia have become unaffordable.

More gas production will not solve the gas price crisis on the east coast of Australia. Gas consumers are at the mercy of a gas cartel.

The solution to excessively high domestic gas prices is a full domestic gas reservation policy fixing prices at $5/gigajoule on existing and future gas production.

July 9, 2019 (IEEFA Australia)  ̶  Domestic gas prices in Australia have become unaffordable for households, industry, and electricity production, while internationally, Australian gas prices are higher than the most expensive markets in the world, concludes a new report out today.

Calling on the Australian government to implement a gas reservation policy, the new report, Towards a Domestic Gas Reservation in Australia by the Institute for Energy Economics and Financial Analysis (IEEFA) provides an overview of Australia’s gas market including the damaging effect increasing gas prices are having on Australian consumers, as gas sets the price for electricity in the country.

Everyone is aching for real relief on gas prices

Report author Bruce Robertson says everyone is aching for real relief on gas prices.

EVERY HOUSEHOLD WOULD SAVE $270 PER ANNUAL ELECTRICITY BILL IF THE GOVERNMENT INTERVENED in the market and set a gas reserve price,” said Robertson.

“This is a much healthier outlook than what is currently happening, with industry and small businesses increasingly at risk and even closing operations, unable to afford their bills,” he said.

The east coast of Australia is controlled by a handful of private gas companies which behave as a cartel, according to the report, setting the price and the supply of gas to the detriment of Australian consumers.

“Now that cartel wants to export Australian domestic gas, and then resell it to us domestically through five proposed import plants, at even higher prices again,” said Robertson.

“Enough is enough. The government must intervene and stop this madness.”

The solution is a full domestic gas reservation policy fixing prices at $5/gigajoule.

The report argues the solution to excessively high gas prices is a full domestic gas reservation policy fixing prices at $5/gigajoule (GJ) on existing and future gas production.

An A$5/GJ price would allow domestic wholesale gas prices to halve for gas intensive industry and gas-powered generators, in turn lowering the wholesale price of electricity, and allowing energy intensive manufacturing to prosper in Australia.

The effect on commercial and industrial (C&I) consumers of electricity would be to reduce their electricity bills by 27%, and an extra $270 in every households’ pocket would result in increased consumption in the economy.

EVERY MAJOR GAS PRODUCING NATION IN THE WORLD HAS SOME FORM OF GAS RESERVATION POLICY, EXCEPT EASTERN AUSTRALIA,” says Robertson. “Even Western Australia has successfully implemented one.”

“The government has set a very public intention to bring energy prices down. A gas reservation policy is really the only solution.”

Read the report: Towards a Domestic Gas Reservation in Australia

Media contact: Kate Finlayson ([email protected]) +61 418 254 237

Author contact: Bruce Robertson ([email protected])

About IEEFA: The Institute for Energy Economics and Financial Analysis (IEEFA) conducts research and analyses on financial and economic issues related to energy and the environment. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy.

Bruce Robertson

Bruce Robertson has been an investment analyst, fund manager and professional investor for over 36 years. He has worked with Perpetual Trustees, UBS, Nippon Life Insurance and BT. He has appeared as an expert witness before a number of government enquiries into energy issues.

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