6427.0.55.008 - Information Paper: Developments in Producer Price Indexes for Natural Gas, Dec 2015  
Latest ISSUE Released at 11:30 AM (CANBERRA TIME) 16/12/2015  First Issue
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INTRODUCTION

Natural gas is extracted from a range of onshore and offshore gas fields across Australia. It is usually processed after leaving the well head so that it conforms to a standard of purity and then is transported via a transmission network of large high pressure pipes to hubs, where it is then sent via a distribution network of smaller lower pressure pipes to users. If it is not transformed into liquified natural gas (LNG) for the export market, natural gas is sold by producers directly to large industrial users (which include manufacturers and energy generators), or to wholesalers and retailers, who then supply the gas to industrial users, other wholesalers and retailers, business and household consumers.

Taking account of ABS price index frameworks, natural gas prices can be be measured at the following points in the supply chain: the price received by producers, purchase price by users (businesses and consumers), export price, pipeline transport prices, and the wholesale and retail margin on gas supply.

Over recent years the natural gas industry has seen development of gas fields and facilities to meet the demand for export LNG, as well as changes in contract practices such as length of contract and escalation mechanisms. As these developments are impacting the domestic market, there has been interest in information related to prices of natural gas. In July 2015, the Australian Energy Market Commission (AEMC) approached the ABS to develop a price index for wholesale natural gas covering the purchase of gas directly from producers, based on bilateral contracts, calculated initially for the east coast market and then extended if possible to the west coast. Subsequent to discussions with the AEMC, the ABS has consulted with industry in both east and west coast markets.

The ABS does currently collect natural gas prices related to bulk transactions. Some of this information is used to produce a Producer Price Index (PPI) for natural gas inputs to manufacturing which is published on a quarterly basis for Australia. This paper outlines a proposal to create a new index focused on the prices received by producers, primarily using information already collected. The paper will also provide information on natural gas related price indexes already published by the ABS as these existing indexes may meet some users' requirements.