Friday 8 June 2012

Gas prices will rise. Is this important to you?

This view from Mt Larcom facing south-east shows
the building site of LNG plants on Curtis Island,
opposite Gladstone, central Queensland.
Every morning and several times throughout each day I check the major Australian news websites. I'm looking for a story. I'm looking for a story about my story on gas prices in Australia's eastern states market. But the result of my search is always the same. Since my story was published on the website, The Global Mail, there has been no response from within Australia's mainstream media so I am still waiting.

Gas prices are going to go up due to the forces of international markets, but it seems noone cares, because it's not going to happen for several years. There are about 3.5 million Australian households and companies in the eastern states market - comprising Queensland, NSW, Victoria, the ACT, Tasmania and South Australia - that use gas. Households use gas for cooking, heating and hot water. The rise in gas prices will be biggest in those places where people rely most heavily on gas because of long winters. If you live in Brisbane you might only turn on the electric wall-mounted split unit for a couple of days a year. But if you live in Melbourne you will probably be using a ducted gas heating system with a boiler in your house and you'll keep the heat on for months at a time.

Why are gas prices going up? Well, it will help if you read the story. The story began in March when I was working on another story, about shale gas in Australia, for a different magazine. As I did my research it appeared to me that there was another story to be told, so I excerpted that material from the first story and set it aside. Then I contacted The Global Mail. I chose them because they run longer pieces. Because it's a website there's also less likelihood of cuts to the story. I first contacted the editor at the beginning of April and then submitted the story later that month. There was a change in editing roles so with a bit of delay I began to talk with a new person and we worked together to complete the story, which grew a bit with new material she asked for. The final version weighs in at 3200 words and comes with a nice diagram the magazine produced. There are good photos as well. It's a professional package.

As to when gas prices will start rising, that depends mainly on when the contracts that are periodically signed between gas producers and gas retailers, expire. When they expire new contracts will need to be drawn up and signed by the involved companies. In two states - NSW and South Australia - there is also a regulatory body that is involved in establishing prices (although it's not clear at this point if the price of gas for consumers in NSW will continue to be regulated next year). Those supply contracts signed between big companies that produce and deliver gas will in effect determine the price of gas households pay.

The story is so long partly because it was difficult to get definitive answers to the questions I asked. The peak bodies that serve the eastern states gas market are shy of media exposure and tend to rely for their communications purposes on periodic statements issued when research has been completed. As for the federal government, it is always hard to elicit information for stories from government departments.

But the fact remains that there are a lot of well-informed people working in this area who would have known some time back that price rises were going to happen for people living in the eastern states market once the liquefied natural gas (LNG) plants that were approved for construction by the Queensland government at Gladstone, came online. Again, that's a future event. The first LNG plant is expected to start operating in 2014. But the anticipation of higher gas prices in the eastern states market is already impacting on the long-term contracts signed bewteen gas producers and industrial gas users.

In the story I look to Western Australia and the experience there, where LNG has been produced and exported for over 20 years from the North West Shelf project. To write my story I also made a phone call to a couple of industry experts in the US but I did not include that information because the dynamics within the North American market are different from those that determine prices in Australia.

I guess the main problem, apart from the fact that the things I'm writing about are to happen some time down the track, is that the gas business is incredibly complex. It simply takes a fair amount of time to explain all the ins and outs. Some people will not have the patience. Knowing this, I struck out all the material I had written about overseas gas production and overseas gas demand. But in short, urbanisation and economic development in Asia is pushing governments there, especially in China, to look for cheap, clean sources of energy. Gas is their choice. And while low domestic prices in North America have led to government approval for the construction of gas export terminals in the US and Canada, the expectation is that soaring Asian demand will continue to keep prices in the Asian gas market high.

It is our upcoming linkage, via the Gladstone LNG export terminals, to that market that will lead to higher gas prices inside Australia, where we have traditionally had very low retail prices.

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