Thursday 30 October 2014

A not so small gas industry issue that APPEA won't be running to the media about


The Australian Petroleum Production and Exploration Association is a very vocal lobbyist on behalf of the gas industry. It frequently seeks to demonise individuals who oppose the growth in unconventional gasfields.

APPEA states; Concern about security of gas supplies in NSW is justified. However, household gas supplies are likely to be unaffected. Most of the impact in terms of physical supply and pricing will be felt by large energy-intensive businesses and Australia’s resources industry is calling on The Greens and the Lock the Gate Alliance to denounce civil disobedience action at work sites across the country before someone is seriously injured. The APPEA and MCA recognise there is legitimate interest among landholders and communities on how resources are produced. Those issues are best addressed through open and transparent dialogue based on facts rather than through fear and threatening behaviour. In recent weeks we’ve witnessed protesters chain themselves to vehicles, dangle from machinery dressed as bats, lie in the path of vehicles and intimidate landholders who are happy to have exploration take place on their properties.
The reality is that wholesale and retail as prices are not increasing due to gas shortages at national, state or even regional level. 

Neither is the fact that domestic LNG gas prices are linked to an international benchmark and, the more expensive wholesale unconventional domestic gas price will be be linked to export market prices, the only reasons business and residential bills will rise.

Unlawful cartel behaviour is also an issue driving up retail gas prices.

On 3 January 2014 the Eastern Australia Domestic Gas Market Study (BREE report) was released which highlighted the difficulties inherent in a pricing model that is opaque because the terms, conditions and pricing agreements of bilateral contracts are confidential. This lack of transparency hampers price discovery when there is a change in the market, as information is not available outside contracting parties, particularly in a timeframe that is relevant to pricing in a dynamic market. 

Crikey observed on 28 February 2014:

The Australian Petroleum Production and Exploration Association (APPEA), the gas industry’s peak body, breezily welcomed the BREE report, particularly the emphasis on removing regulatory impediments to new supply and the rejection of calls for national reservation, and saying it confirmed the “market is indeed working”. APPEA ignored the governance and competition issues raised by BREE, but pointed to nine publicly announced (but confidential) wholesale gas contracts to argue there was already “abundant information” in the market, and it focused instead on the need to quickly bring on new supply. APPEA chief executive David Byeer followed up with an op-ed in The Australian Financial Review.

To date APPEA remains silent on this judgment involving SPEED-E-GAS (NSW) owned by Origin Energy LPG Limited a subsidiary of Origin Energy Limited .......

Excerpts from the 24 October 2014 judgment in AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v RENEGADE GAS PTY LTD (TRADING AS SUPAGAS NSW) (ACN 074 008 496), SPEED-E-GAS (NSW) PTY LTD (ACN 064 624 915), PAUL BERMAN, COREY JOHN SMITH and JAY RUSSELL WILSON:

* (c) Amount of loss or damage caused
123.  It is not possible to quantify the number of customers denied the opportunity of a price reduction for Forklift Gas in Sydney due to the existence and implementation of the Understanding, or the period of time for which those customers were denied that opportunity.
124.   However, having regard to the facts and matters set out at Section B(1) above (Forklift Gas), [13]-[16] and [18] above and that the number of potential customers that could be affected grew over the Relevant Period, the inference to be drawn is that the existence and implementation of the Understanding resulted in a very large number of customers being denied a competitive offer that otherwise would have been made. The extent of the loss or damage is able to be assessed to a limited extent by the fact that, as Renegade described the position, when a discounted price was offered by one of the two companies to a customer of the other, the customer who was the subject of such competition typically obtained a discount in the order of $7 or 20% (the average effect of such instances of competition - again, relative to original price): see [15] above.
125.  Further, it is important to note that, as described at [16] above, Renegade regularly increased its prices for all, or almost all of its LPG customers in line with increases in an index known as the Saudi Gate Price. Those increases occurred as frequently as monthly when the Saudi Gate Price was rising, but only on one occasion when the Saudi Gate Price was not rising. The Saudi Gate Price fluctuated both up and down from time to time. Except for high volume customers, Renegade did not generally reduce its prices when the Saudi Gate Price reduced. As a result, over time the margin earned by Renegade from each customer would usually increase.

* 1. Corporations
  1. The penalties to be imposed on Renegade ($4.8 million over 52 months) and Speed-E-Gas ($3.1 million payable within 30 days) are appropriate. They are equally culpable and responsible.
312.  The difference between the two penalties reflects, among other things, a difference in the discount for Renegade’s belated “plea” before trial and for Speed-E-Gas’ early and substantial cooperation with the ACCC investigation and early “plea”.

* (c) Conclusion
  1. The declarations at paragraphs 8 and 9 of Annexure A have utility. In the absence of them, the contravening conduct would not otherwise be clearly identified. There is also public interest to be served in making the declarations. They will serve as a warning to others who may contemplate making or giving effect to contracts, arrangements or understandings between competitors by which they allocate customers between them. Given the seriousness of the conduct and the period over which it occurred, this is a case where the circumstances call for the marking of the Court’s disapproval of the contravening conduct. Speed-E-Gas’ conduct contravened the Act through a deliberate, largely covert, long standing cartel arrangement, which had the potential to adversely affect a high proportion of manufacturing and distribution businesses across Sydney and which likely had an adverse effect on those businesses that were denied the opportunity of receiving a price competitive offer from Speed-E-Gas during the Relevant Period and from 24 July 2009 to July 2011.
* I. PARITY AND TOTALITY OF PENALTIES
310.  The parity of penalties to be imposed upon the respondents must be considered.
1. Corporations
311.  The penalties to be imposed on Renegade ($4.8 million over 52 months) and Speed-E-Gas ($3.1 million payable within 30 days) are appropriate. They are equally culpable and responsible.
312. The difference between the two penalties reflects, among other things, a difference in the discount for Renegade’s belated “plea” before trial and for Speed-E-Gas’ early and substantial cooperation with the ACCC investigation and early “plea”.
2. Natural persons
313.  As noted above, in assessing parity for the natural person respondents it is appropriate to consider both disqualification orders and pecuniary penalties: Kerkhoffs at [17]-[21].
314.  Mr Berman is to pay a pecuniary penalty of $250,000 and be disqualified for 3 years. Mr Smith is to pay a pecuniary penalty of $100,000. Mr Wilson is to pay a pecuniary penalty of $50,000. There is parity in the orders proposed against Mr Berman and the pecuniary penalties proposed to be imposed on Mr Smith and Mr Wilson having regard to Mr Berman’s greater culpability and, on the other side, Mr Smith’s and Mr Wilson’s cooperation with the ACCC.
315. The ACCC submitted (and I accept) that the culpability of both Mr Wilson and Mr Smith is significantly less than that of Mr Berman. Each was subject to the direction of his manager, and for the majority of the Relevant Period, the active collusion underpinning of the Understanding occurred directly between Mr Berman and Mr Hobby with Mr Smith and Mr Wilson responsible for implementing their instructions consequent upon that collusion. In relation to Mr Smith and Mr Wilson, during the Relevant Period, each was broadly equally culpable and responsible for the contravening conduct.
316. Mr Smith is to pay a pecuniary penalty of $100,000 while Mr Wilson is to pay $50,000. Mr Wilson is entitled to a substantial discount because of his cooperation with the ACCC. Mr Smith is entitled to a lesser discount because his cooperation came later. Further, Mr Smith enjoys a much higher income than Mr Wilson and otherwise has a significantly greater capacity to pay. While a penalty of more than $50,000 imposed upon Mr Wilson would be likely to exceed any amount required for specific deterrence, a penalty of that amount imposed upon Mr Smith would be inadequate for that purpose.
317. For those reasons, I accept that there is appropriate parity between the penalties proposed to be imposed upon each of the respondents. [my red bolding]

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