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New South Wales gas prices rise as CBM development stalls

World Coal,

Households in the Australian state of New South Wales (NSW) are set to face an increase of up to AU$ 225/year on gas bills as the start-up of LNG exports from Queensland places a squeeze on east coast supplies.

The state pricing regulator, IPART, recommended the price hikes on Wednesday, though the recommendation has been met with alarm from consumer groups, who have warned of affordability problems for vulnerable consumers.

NSW businesses have said that the price rises could put jobs at risk.

Australian Industry Group NSW director, Mark Goodsell, said that industrial gas users in the eastern states face “a doubling or tripling” of wholesale prices, with the impacts to be felt throughout the chemicals, fertilisers, food processing and other sectors.

“Some businesses will be able to pass on their costs to households and other customers, but trade-exposed businesses won’t,” Goodsell said.

“That means a hit to profits, reinvestment, and ultimately jobs.”

More price hikes

The increases follow recent sharp hikes in electricity prices, and are roughly 7% lower than those originally sought by AGL Energy and Origin Energy. However, they nonetheless represent an annual increase of 17.6%, the third straight year of rises in regulated prices.

IPART chairman, Peter Boxall, blamed the increases on rising wholesale prices as the eastern states are linked to the Asian market through new LNG export plants in Queensland.

“The ability to export liquid natural gas is driving a structural change in eastern Australia’s wholesale gas market, and increasingly domestic gas prices will be influenced by what is happening in world gas markets,” Dr Boxall said.

Higher costs for transmitting and distributing gas were contributing to the increase in regulated prices by AGL, the biggest supplier to small customers, IPART said.

In February, AGL Energy pushed for price hikes of up to 20% from 1 July. A spokeswoman for the company blamed the carbon price floor tax for a large slice of the increase.

“If the carbon price is removed from 1 July 2014, the increase will be 11.3% instead,” she said. “This means a typical residential customer using 23 Gj of gas a year, will face an average bill increase of about AU$ 2 per week including GST.”

CBM operations must be developed

AGL managing director, Michael Fraser, blamed the slowness of coalbed methane (CBM) resource development in NSW, where key players such as AGL and Santos have been hampered in their efforts to bring on new supplies.

“The key reasons for this increase are the market price of wholesale gas and network charges,” the AGL spokeswoman said.

“Gas produced by AGL in NSW comprises approximately five percent of total NSW consumption. AGL believes that securing more gas supply within NSW will help apply downward pressure on gas prices.”

Economists at AGL recently released a research paper, ‘Solving for ‘x’ – the NSW Gas Supply Cliff’, which suggested that NSW could potentially experience around 20 days of gas shortages from winter 2016. The paper said urgent investment was needed in developing CBM reserves in the state if these gas shortages are to be avoided.

Lock the gate

The regulator’s ruling on gas prices has been seized upon by anti-CBM activists who claim it as evidence for the harm they perceive CBM development as causing consumers.

Phil Laird, national co-ordinator for the Lock the Gate Alliance, one of the fiercest opponents to CBM development in the eastern states, said: “It is a terrible outcome for regional communities, who not only have to deal with the damage to land and water from dangerous CBM mining, but now face escalating gas prices in a bitter double blow.

“Gas companies like Origin are making local consumers bear the cost of their plans to pursue world prices and massive profits. IPART is basically proposing to accommodate their profiteering, and NSW regional communities and consumers will pay the cost.”

In March, both Santos and AGL agreed not to enforce arbitration over land access for CBM operations, guaranteeing farmers the right to say no to CBM mining activities.

AGL Energy has disputed some of the claims made by activists that CBM development is damaging to local environments and communities.

In a statement, the company said that it “extracts gas from coal seams that are hundreds of metres below the rocks that contain water used in agriculture. Gas in these seams is held in place by water that is not only deep underground but typically very old and not sourced from water that may be used by people.”

“We work closely with landowners to ensure that our CSG activities can be conducted alongside other land uses while providing significant local economic benefits,” AGL said. 

Edited from various sources by Sam Dodson

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