CITY GATE NATURAL GAS PRICING IN AUSTRALIA

Abstract

Natural gas price structures in Australia vary widely from state to state. Long-term low-base-price contracts with inadequate, but freely entered into, price escalation clauses are the main cause of this discrepancy.

Natural gas pricing structures in Australia evolved from the cost of alternate energy forms or market conditions prior to 1970, when the first contracts were negotiated. Major changes in the pricing environment have since occurred. New factors include substantial Government control or influence and the development of a monopsonistic market in place of the previous situation where there were alternative sales outlets.

The influence of gas utilities on the overall gas price structure has changed dramatically in the last 10 years.

Explorers are looking to new marketing and gas use concepts to obtain a more equitable return for their risk than the present monopsonistic market promises to allow. They do not accept that the reward for success should reside with the gas utilities as it currently does, rather than with them as the original risk takers.

The industry should itself make changes in current gas pricing structures to correct inequitable and anomalous situations. This would preempt probable Government interference.

A free market system is the best long-term policy to ensure efficient exploration and economic use of natural gas.