Unions' gas play may not pay
The Australian Council of Trade Unions has ramped up its push for a federal gas reserve to keep domestic prices down, but experts say it will not pay off.
The ACTU voted in support of pressuring governments to set up a gas reservation scheme that would see a portion of Australia’s vast gas exports held back and sold at a lower price to local buyers.
Proponents say it is ridiculous that Australian manufacturers and other industries pay roughly equal to the international gas price, despite the country being a major supplier.
But despite the ever-rising gas prices placing pressure on households and businesses, Grattan Institute energy fellow David Blowers says stashing some for domestic use will not affect prices in the long run.
He pointed to Western Australia’s gas reserve scheme (implemented in 2006) as an example.
WA’s policy required LNG projects to demonstrate they could supply 15 per cent of their total product to the domestic market.
But the scheme has only seen gas prices in WA rise. In fact, they have gone up at about the same rate as the rest of the country, and are expected to keep going.
“Initially, it probably did help to keep prices low because there was a significant oversupply of gas in the market,” Mr Blowers told the ABC.
“But what the gas reservation policy also did was, to an extent, deter new investment in gas supplies.
“Over time, that excess supply of gas became eroded and became an undersupply, and so prices started shooting up.
“For me, a gas reservation policy would make sense if Australia was running out of gas, but at the moment there is no shortage.
“What is actually happening is a transition from us paying what have traditionally been low gas prices to a higher price which producers can get internationally.”
Some experts say that as a political matter, it is about weighing-up the job losses that come as a result of reduced industry due to high gas prices, against the job losses that would come from reduced investment in gas.
Both the Australia Petroleum Production and Exploration Association and Federal Government have put out energy white papers arguing against imposing potential market distortions, because artificial market interventions cause inefficiencies.
In a recent article for The Conversation, Monash University economics professor Stephen King said artificially lowering gas prices for domestic use could create new problems.
“It will reduce their incentive to adopt energy reducing technology,” he wrote.
“It will mean that they use gas to produce even when the (unsubsidised) cost of production exceeds the value of the output.”
But, he said, community expectations could override the economic rationale for not introducing a gas reserve scheme.
“It's difficult [for households and businesses] to understand, when production of gas is rising, why prices continue to go up as well,” Professor Hepburn said.