The government plans to take a big step back into the energy market with its gas sector proposal.
The state government is considering a bold plan for its remerged energy utility – a combined Synergy and Verve – to become a collective buyer of gas for all state agencies, and potentially for the private sector.
Energy Minister Mike Nahan said the government was looking to counter the bargaining power of the big gas producers like Shell, Chevron and Woodside, which are able to sell collectively through their joint ventures.
“We would have collective buying to compensate for their collective selling,” Mr Nahan told Business News.
The minister made the comments after launching a government report that predicted a spike in wholesale gas prices over the next seven years.
The Gas Statement of Opportunities predicted prices to drop from about $6.70 per gigajoule currently to $4.08/GJ in 2015, before rising as high as $9.27/GJ in 2020.
The exact price paid by gas users, such as Alcoa, Alinta Energy and Verve is subject to negotiation and is not made public.
The National Institute of Economic and Industry Research, which was commissioned by the government’s Independent Market Operator to prepare the forecasts, expects export market forces to drive domestic prices.
“The linkage between domestic gas prices and LNG ‘netback’ prices increases with the commencement of Gorgon and Wheatstone LNG export facilities, which are expected to be operational in 2015 and 2016,” the gas report stated.
Its report concludes there will be “more than adequate supply” to the domestic gas market over the next decade “as long as gas consumers are willing to pay the forecast gas prices”.
Mr Nahan acknowledged one of the big risks facing the market was whether the Woodside-led North West Shelf venture renewed its gas supply contracts.
“The largest supplier is the North West Shelf with 600 terajoues a day,” he said.
“Will they renew those contracts when they come up due by 2020? I don’t know.”
Both the North West Shelf venture and the Chevron-led Gorgon joint venture have been granted regulatory approval to collectively market their gas, despite opposition from gas buyers.
Mr Nahan said he was looking at ways of countering their market power.
“One thing the government is thinking about seriously, and one reason we put the merger of Synergy and Verve together, is to act as a gas aggregator,” he said.
“To have a single negotiating group on behalf of government purchasers of gas – Horizon, Synergy and Verve.”
“It improves your bargaining power.”
He also expects the government would get a better price if it negotiated a single, large contract.
“There are huge benefits of just taking a take-or-pay with very few conditions on it, the price goes right down,” Mr Nahan said, adding that he was assessing whether to widen the concept of central buying.
“We will get that combined entity to buy on behalf of government. The other question is whether you do it as an aggregator for non-state entities. That is something I will consider.
“In other markets, a private sector aggregator would come forward. Alinta, in its old days, might have done that, but it’s not in a position to do it.”
Mr Nahan said he would ensure the private sector was not disrupted by his proposal.
“The last thing we want to do in any way is interfere with private participation in the industry, and undermine marketers of gas, whether that be Kleenheat or Alinta,” he said.
He added that large private sector buyers would continue to handle their own gas purchases.
“One of the big issues is Alcoa renewing their contracts with the North West Shelf when they start coming up. That consumes 40 per cent of the gas. That’s a real issue for the state. Alcoa is a big investor,” Mr Nahan said.
“I have no visibility or involvement with it; that’s for them to do, we won’t get involved.”