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Gas ban inflating Victoria power prices

John Kehoe
John KehoeEconomics editor

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Victorians are suffering from high power bills because it costs six times more to pipe gas down from Queensland than to transport it within the state, according to figures from the Morrison government.

The Victorian government has banned onshore gas exploration and drilling and is having to import significant amounts of gas from Queensland, producers say.

Prime Minister Scott Morrison has been ramping up pressure on Victoria and NSW to increase gas supply into their markets ahead of his meeting with state premiers in Cairns on Friday.

The cost of gas transportation in Victoria is just 37¢ per gigajoule, compared to between $2.16 and $2.63 per gigajoule to pipe the gas to Victoria from Queensland, and $5.13 to $5.75 to move it from the Northern Territory.

About 30 per cent of a $9 per gigajoule gas contract in Victoria would be transportation costs if it was sourced from Queensland.

The figures are from federal Energy Minister Angus Taylor's Department of Energy and Environment, based on numbers from the Australian Competition and Consumer Commission.

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Gas ban having 'significant impact'

Australian Petroleum Production & Exploration Association chief executive Andrew McConville said Victoria's gas exploration and drilling ban was having a "significant impact" stopping supply in Victoria.

"We are seeing significant flows of gas coming from Queensland," Mr McConville said. "That's being reflected in terms of higher prices."

"The moratorium in Victoria is also hurting investment confidence and that's going to take years to repair."

Average annual wholesale power prices have surged 262 per cent in Victoria since 2015, compared to 179 per cent in South Australia, 152 per cent in NSW, 142 per cent in Tasmania and 53 per cent in Queensland, according to Australian Energy Market Operator figures pushed by federal Labor climate change spokesman Mark Butler.

The state's onshore gas moratorium for conventional drilling is due to be reviewed by next year.

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Fracking or unconventional drilling, which is injecting hydraulic fracturing fluid into underground rocks to extract the gas, faces an indefinite ban.

Mr Taylor said Victorian industry and consumers were wearing the higher costs because the Andrews Labor government refusal to allow new conventional gas extraction.

"Victoria has substantial gas reserves that should be explored in order to drive down the price of gas in the east coast gas market," Mr Taylor said.

A Victorian government spokeswoman said: "Supply is not the issue. Australia is the world’s second-largest LNG exporter, with around two-thirds of gas produced for the east coast market exported to Asia.

"We support a domestic reserve to ensure Australian businesses and households are supplied first, before our gas is shipped offshore."

Victorian Premier Daniel Andrews' ban on gas exploration and drilling is limiting the supply of gas into the state. AAP

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Victoria also faces gas supply pressures due to the output decline at Bass Strait and the rising extraction costs.

Gas reserves a mystery

The extent of gas reserves in Victoria is a bit of a mystery because of the Labor government's ban on exploration.

NSW technically does not have a ban on onshore gas extraction but in practice its strict and complex regulations mean projects aren't proceeding, amid an anti-gas revolt by farmers and high-profile radio personality Alan Jones.

Santos' $3 billion Narrabri coal seam gas project in NSW is being assessed for approval by the state government, with provisional gas sales contracts signed with firms including Brickworks, chemical producer Perdaman Group and Weston Energy.

Santos submitted its environmental impact statement in February 2017 to the NSW Department of Planning and Environment.

Santos managing chief executive officer Kevin Gallagher has said Narrabri could supply almost half of NSW's gas and that it had committed the supply to domestic users.

Pressure on the states to allow more gas supply is likely to build after the Morrison government announced a range of measures to boost supply into the east coast market including a potential domestic gas reservation measure for future projects.

John Kehoe is Economics editor at Parliament House, Canberra. He writes on economics, politics and business. John was Washington correspondent covering Donald Trump’s election. He joined the Financial Review in 2008 from Treasury. Connect with John on Twitter. Email John at jkehoe@afr.com

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