Gas battle as Angus Taylor shuns intervention, backs free market
Energy Minister Angus Taylor has dialled back speculation he may be in favour of introducing a mechanism to drive price controls for gas.
The threat of federal government intervention in gas prices has been substantially dialled back, to the relief of major producers such as Santos, but the move has caused concern among big users, setting the scene for a fresh battle within the east coast market.
The government is keen to encourage the development of new gas supplies to put downward pressure on gas prices in the market. However, the risk of government intervening to keep the price within a specific ceiling or floor is of huge concern to producers, who are reluctant to invest hundreds of millions of dollars without certainty.
While the Prime Minister has recently signalled the government would not intervene on prices, gas producers have been concerned that Energy Minister Angus Taylor, whose mission is to keep consumer prices low, was not of the same view and may force price controls on the industry.
However, Mr Taylor confirmed that he did agree with the Prime Minister that the market should drive prices.
“The PM and I are absolutely at one, that the Australian consumers should receive internationally competitive prices for gas in Australia. We announced that some time back as part of our whole strategy on gas, but crucial to having a successful gas industry in this country, which will help to bring down emissions, we’ve got to unlock supply,” he told The Australian.
Asked if he would rule out putting in ceiling or a cap on gas prices, Mr Taylor said: “We haven’t been talking about a ceiling. We have said there needs to be an industry code where suppliers work with their customers to deliver prices that are internationally competitive. We have been very clear about that and we want to see that occurring.
“The good news is we have been seeing a shift in the market towards that. That’s great. The ACCC is watching it very closely. We are working closely with industry in making sure the industry code does go into place and that is about the market working better, not replacing it.”
Canberra handed responsibility for tackling some of the thorniest issues back to companies, demanding producers and users follow a voluntary code of conduct.
Santos chief executive Kevin Gallagher told The Australian he was heartened by Mr Taylor’s commitment not to introduce price controls.
“I want to continue to work constructively with Minister Taylor, the ACCC and our customers to increase price transparency, and indeed, transparency of our cost base,” he said.
“The best thing the government could do to get gas prices down on the east coast is to promote investment, and remove barriers to investment, in new gas supply sources and pipelines through stable energy and fiscal policy. Scale is also important because it is the best way to get unit costs lower and, together with investment in new supply, will get domestic gas prices down as well.”
However, Ai Group said it was concerned and wanted a clear price signal as part of the code.
“Gas consumers are working towards getting a workable voluntary code of conduct with gas producers which will provide explicit guidance around price transparency. This is essential to underpin the hundreds of thousands of jobs in industry reliant on affordable and reliable gas,” Ai CEO Innes Willox said.
“Manufacturers understand how markets work — there needs to be some global benchmark that gives guidance to gas contracts in Australia.
“We can’t have Australia being one of the world’s biggest gas producers whose local industry pays all costs of exporting gas. Certainty of supply and transparency of price are the keys to a gas-led recovery as outlined by the Prime Minister last September.”
Manufacturing Australia also called for more transparency on pricing.
“This is not about price intervention: it is about building a more transparent, more competitive Australian gas market that can deliver internationally competitive prices and underpin long-term investments by producers and customers alike,” Manufacturing Australia chief executive Ben Eade said. “Ten consecutive ACCC reports have found the market as it is currently operating isn’t doing that.”
Debate continues to rage over which international gas price the Australian market should reference. The government likes to compare prices with America’s Henry Hub, but the gas sector argues this is an unfair comparison because Australia lacks the scale and depth of the US gas markets.
“When it comes to internationally competitive prices, our Australian customers always pay less for gas than our Asian customers and that is evident from our public ASX reports,” Mr Gallagher said.
“But it is nonsensical that because customers in Louisiana get $4 gas, then so should customers in Sydney. The cost of gas in various countries will always depend on the cost of supply, just as labour costs in various countries will depend on wage rates in those countries.”
In late January, Mr Morrison rejected calls for price controls when he signed a new three-year agreement with LNG exporters to offer uncontracted gas to domestic market customers at a reasonable price.
“We are a market economy. And what we want to see is the market operate well here. And we don’t want to put a floor on the price.
“We want that price to be able to go where it needs to go, which will be driven not just by what is happening here in Australia, but the price pressures, which is putting pressure down on prices.”
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