By Mike Foley
Australia’s ‘defining challenge’ is to make an unprecedented market intervention to bring down soaring energy prices, Treasurer Jim Chalmers has declared on the eve of a meeting of G20 nations, following the competition watchdog’s finding that the cost of gas will more than double next year.
“The chaos in energy markets is the defining challenge for Australia and for a lot of countries represented here at the G20,” Chalmers said.
Treasurer Jim Chalmers says the government’s preference is to intervene in the energy market to cap prices and bring down costs for households and manufacturers. Credit: AP, Alex Ellinghausen
“We are contemplating intervening in our domestic energy market in ways that we wouldn’t have contemplated in earlier years.”
A report by the Australian Competition and Consumer Commission released on Monday found the prices being offered on the spot market between March and August for 2023 delivery averaged $20 a gigajoule, more than double the average $10 a gigajoule being offered in the six months to February. That means prices will have doubled by next year.
These prices have flowed through to long-term gas contracts being offered to manufacturers, whose representatives told this masthead that the prices now being offered had reached as high as $45 a gigajoule.
East coast gas contract prices traded as low as $4 a gigajoule prior to 2015, when exports began and linked the east coast to the international market.
An international energy crunch is driving international demand, following Russia’s invasion of Ukraine, and the federal Treasury forecast in last month’s budget that gas prices would rise 20 per cent more next year, and electricity prices would also spike a further 30 per cent.
The federal government is under pressure to relieve the pressure of energy costs on households and industry, following election promises to revitalise manufacturing and to cut power bills $275 by 2025.
Experts warn energy prices are expected to keep rising well into next year, and beyond.
Speaking in an interview with Bloomberg, Chalmers said the price spike was “putting at risk a number of our industries, but also making life harder for ordinary Australians”.
“We are considering a regulatory intervention as our first priority, but leaving all the options on the table because we can’t have a situation where some of the quite dire forecasts for energy prices play out that will be too tough for our industries and for our people.”
While Chalmers says his preference is to form new regulations that limit the cost of gas and possibly coal for electricity generators and manufacturers, but “all options” are being considered, including direct subsidies for energy users.
Treasury Secretary Steven Kennedy said last week that government market “interventions that directly address the higher domestic thermal coal and gas prices are more likely to be optimal”.
Some of Australia’s key trade partners such as Japan and Korea, which both rely on coal and gas imports, have expressed concern that market intervention could threaten their energy security.
Trade Minister Don Farrell said he had promised both countries the government would not make any moves that disrupts the energy supply contracts Australian exporters have in both nations.
“I’ve just come back from Japan and Korea.... We intend to honour our contracts with those countries and I’ve given them some assurances that that’s what we are going to do,” Farrell told the ABC.
“So there are some investigations going on there but nothing that we do will change our reliability as a supplier of conventional power sources to those countries where we have agreements.”
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