ACCC chief Rod Sims plans to closely monitor the pipeline industry. Photo: Michele MossopPipeline major APA has roundly rejected criticism from the competition watchdog it is wielding undue market power, as it emerged the collapse in the oil price has slashed exploration activity with a warning of a possible lack of gas supplies in less than three years.
Additional gas reserves will need to be developed by 2019 to “maintain long-term gas supply adequacy” in eastern and south-eastern Australia, the managing director of the Australian Energy Markets Operator, Matt Zema, warned.
“This means that currently undeveloped gas reserves, including those reported as contingent resources and possible reserves, will be required to ‘come online’ to meet forecast demand as early as 2019.”
The slump in the oil price has resulted in a collapse in oil and gas exploration, according to a survey by EnergyQuest, while the start-up of gas export projects in Queensland could lead to a “supply gap” of about 80 petajoules of gas in 2020, rising to about 170 petajoules by 2025. Australia’s annual gas demand is near 700 petajoules.
On Wednesday, Australian Competition and Consumer Commission head Rod Sims warned the concentration of power in the gas pipeline industry may be adversely affecting gas supplies, foreshadowing tighter regulation of gas pipeline operations.
“We’re big, there’s no question about that,” APA boss Mick McCormack said in response to criticism from the ACCC. “No claim of market power has ever been made against us. The claim of market power is a very serious matter.
“I run a commercial enterprise There is no profit for me in not selling capacity” in APA pipelines.
“The test here isn’t whether the price should be lower, but whether the price is ‘fair and reasonable’ and how it was arrived at.”
But Mr Sims said the lack of competition means “this is a market where market power can be exercised and where the potential impact of monopoly pricing can be significant.”
The ACCC estimates APA controls 50 per cent of the industry. Regulation of natural monopolies such as pipelines is accepted in other areas of the economy and in many other countries “even in the most free-market-supportive ones like the United States”, Mr Sims said.
“To argue regulation is the panacea is ridiculous,” Mr McCormack said. “We structure our tariffs on a commercial basis.”
After the industry has spent $30 billion developing a national gas grid for the past two decades, “the proposal the ACCC seems to be putting is to recommend regulation”.
This story Administrator ready to work first appeared on Nanjing Night Net.