Governments need to reconsider bans on gas exploration if Australia's east coast gas market is to have certainty of supply and become more competitive, the competition watchdog says.
In a report released on Friday, the Australian Competition and Consumer Commission (ACCC) said moratoriums and restrictions in NSW, Victoria and Tasmania are impeding onshore gas exploration and development, while a threat is posed by a fracking ban under consideration in the Northern Territory.
The ACCC said it recognises environmental and social considerations behind the bans and restrictions but proposals for gas exploration and development should be reviewed on a case-by-case basis.
"These reviews should take account of a range of considerations including the costs and benefits to the domestic gas market, and to industrial users in particular, as well as environmental and social concerns," the ACCC said in its report.
"The greater the level and diversity of supply, located close to demand centres, the more dynamic and competitive the east coast gas market will be."
The ACCC said gas production in the east coast gas market is currently forecast to meet domestic demand and existing LNG export commitments until at least 2025, but this requires the development of reserves in projects that are currently undeveloped.
"Without further and extensive investment in currently undeveloped gas reserves, there may be significant unfulfilled demand on the east coast," the watchdog said.
Peak industry association, the Australian Industry Group (Ai Group), said there were too many hurdles hindering gas reserves from being brought to market in full and on time.
"Replacing blanket bans with smart, effective regulation of onshore gas development will help over the medium term and should be a priority for the states and territories," Ai Group chief executive Innes Willox said.
The ACCC said that the introduction of LNG, a fall in oil prices leading to a downturn in exploration and new development, and regulatory uncertainty had made the gas market increasingly complex and the future supply outlook uncertain.
ACCC chairman Rod Sims said some suppliers had taken advantage of the uncertainty and potential shortfalls to increase prices and implement more restrictive non-price terms and conditions.
The ACCC has also asked the federal government to overhaul regulations for gas pipelines, saying rules covering east coast gas markets are ineffective.
The ACCC said a number of pipeline operators are engaging in monopoly pricing, resulting in higher gas prices, the costs of which will ultimately be borne by consumers.
A more competitive market would help restrain wholesale gas prices, and in turn, increases in residential bills.
Australia's largest gas pipeline operator, APA Group,slammed the ACCC report, saying the challenges of developing new gas supplies "have been obvious for a number of years".
"It is a perverse approach for the ACCC to consider that more regulation of the pipeline industry will contribute to solving this issue," APA managing director Mick McCormack said.
The federal government ordered the inquiry in 2014 to investigate whether insufficient competition in the wholesale gas market was driving up prices.
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