In an economy that suffers from far too much concentration, Australia’s gas cartel is one of the worst examples of an industry oligopoly allowed to operate unchecked in a policy environment shaped by neoliberal deregulatory ideology.
The Australian Competition and Consumer Commission (ACCC) has been examining the lack of competition in east coast gas supply since 2020, and its latest report — which has caused such a flurry this week for suggesting a 2023 gas shortfall — further details the anti-competitive nature of gas supply. Having previously concluded that competition was basically a non-issue when it came to gas supply, the ACCC now says: “Competition between producers is ineffective and has had an adverse effect on the ability of [commercial and industrial] users to procure gas on competitive terms.”
Eighty-five per cent of gas is produced by just five firms, and three account for more than two-thirds: APLNG (35%) owned by ConocoPhillips, Origin and Sinopec; QCLNG (26%), which is mainly Shell; and GLNG (10%), owned by Santos, Petronas and Total. Moreover “these metrics understate the true degree of influence that LNG exporters have in this part of the market, because they do not account for the interests of their associates”.
And they don’t account for the power given to them by joint ventures or exclusivity provisions — both of which the ACCC expresses significant concerns about. It also says the production industry is becoming more concentrated as big producers acquire smaller ones or their assets.
(It’s not just gas production. Gas pipeline control is concentrated as well — something the ACCC has been complaining about for a long time. “In the ACCC’s 2015 inquiry we observed that … a large number of them had been engaging in monopoly pricing. This was giving rise to higher delivered gas prices and having an adverse effect on economic efficiency and consumers. In the intervening period, we have seen no real change in the behaviour of pipeline operators, with transportation prices largely remaining steady over this period.” Pipeline ownership is dominated by the APA Group.)
The concentrated nature of the gas production cartel means it’s easier for the companies to manipulate the amount of gas they export versus the amount they allow into the domestic market, enabling them to dictate domestic prices for commercial and industrial (C&I) users who don’t have locked-in long-term supply contracts.
That business model was developed in the decades when successive governments accepted the idea that any kind of domestic gas reservation was a violation of neoliberal norms — the Coalition accused Labor of embracing socialism in 2016 when Labor suggested a kind of national interest test for gas exports. Within a short time after the 2016 election, the Coalition drafted its own domestic reservation policy, which is what the current government is now threatening to invoke.
How much tax does the east coast gas cartel pay? ConocoPhillips paid no tax between 2015 and 2020, the year for which the most recent ATO data is available. Origin paid about $250 million. Sinopec paid $45,000. Shell paid zero. Santos paid zero. Petronas, zero. Total, zero. All on revenue running into the tens of billions and profits in the billions. And all before the current spike in energy prices turned gas exports into a windfall profit generator.
Australia has created an impressive regulatory structure in which mostly foreign companies can strangle east coast domestic gas supplies, forcing prices up for consumers and businesses, while making a fortune from it on which they pay little tax.
Finally, the government appears to have mustered the courage to intervene — but imposing not a windfall profits tax but merely a supply-based reservation mechanism, while still talking about the “sovereign risk” and threat to foreign investment of intervening too much.
Nor does it accept any responsibility for the megatonnes of CO2 emissions we are exporting via the cartel. We can decarbonise as quickly as possible and leave gas behind as a domestic fuel source, but our contribution to the climate crisis will continue for decades to come.
