Governments must be pro-active and innovative in gas markets to ensure greater competition and enhance constant, reliable service to all consumers, Australian Competition and Consumer Commission Deputy Chairman, Mr Allan Asher said today. Addressing a Centre for Mining & Energy conference, Mr Asher said the recent Longford disaster in Victoria had underlined the reliance of Australians and Australian industry on gas.
"In relation to the Longford disaster, the ACCC has long been aware of the apparently well developed plans for the development of the Kipper field which could provide diversity of supply to Melbourne," he said. "Failure of governments to press for development of this field contributed to the supply uncertainty in Victoria.
"The development of effective competition in both downstream and upstream gas markets in Australia is of vital concern to the ACCC. The reforms implemented to provide pipeline access should drive greater competition in the downstream gas retail markets. However, the benefits of these reforms may be severely limited or not eventuate if there is a lack of competition upstream.
"The primary objective of gas reform is to remove any barriers that may inhibit free and fair trade in gas, to encourage a competitive gas supply industry. The greater the number of participants competing in the supply of gas, the better for users and the community as a whole, which benefits at least indirectly as a result of the lower production costs faced by power generators and manufacturers.
"Aggregation of production interests and coordinated marketing arrangements of gas production joint ventures in the main Australian gas basins are potential obstacles to the development of a competitive interconnected, multi-state Australian gas market".
Mr Asher urged State governments to undertake initiatives to enhance contestability of tenements by increasing the transparency of tenement award and management.
"It is clear that for prospective acreage, granting exploration permits of smaller size and for shorter duration will allow more explorers to be involved in gas exploration and potentially enhance supply competition. This is especially the case in previously explored or particularly prospective regions or where gas is already being produced. In such areas, the Commission advocates permit sizes that are as small and for as short a time period as considered economically viable.
"The Commission also recommends that the selection criteria for allocation of exploration permits be amended to allow bidders who are not currently producers in the region to propose additional public benefits that would arise as a result of greater competition should they find gas".
Mr Asher said access to upstream facilities remained an important aspect for new players to consider before entering a market.
"It has a significant impact on whether potential new entrants bid for acreage in existing production areas following the relinquishment of exploration licences," he said. "Given the importance of access to upstream facilities to the success of the reform process and the fact that Part IIIA of the Trade Practices Act does not provide for access to processing facilities, the introduction of an effective national third party access regime for upstream facilities via the participation of the respective State Governments is vital".
Mr Asher warned that coordinated marketing of gas by joint venture producers may be in breach of the Act but could be authorised if the public benefits exceeded the anti-competitive detriments.
"The Commission believes that the authorisation provisions of the Trade Practices Act are the appropriate mechanism for considering coordinated marketing and that no additional specific legislative regime is required.
"The Commission further believes that State Governments should not grant exemptions from the operation of the TPA for coordinated marketing, but rather allow the same transparent authorisation process to apply to all gas producers. This will be even more important as jurisdictions are inter-connected and basins begin to compete".
Mr Asher's speech will be available on the ACCC website.