Gas industry pledges more supply as code of conduct tensions ease

The increased supply commitment will ease concerns about fresh gas price spikes, which would have intensified pressure on households and businesses.

Australia’s gas industry has pledged to increase domestic supplies to offset a looming east coast shortfall, as tensions with the federal Labor government over its signature code of conduct begin to temper.

The increased supply commitment will ease concerns about fresh gas price spikes, which would have heaped more pressure on households and businesses that are already grappling with a slowing economy, soaring inflation and high interest rates.

As a final version of the rules were announced, Labor said gas producers have promised to increase supplies by at least 260 petajoules to 2027 – reducing the risk of a crisis after official warnings the east coast faces gas shortages every winter until 2026.

“It strikes the right balance. It means that Australian gas under Australian soil and Australian water is available for Australians at a reasonable price, but we are making sure that those gas shortages – that both The Australian Energy Market Operator and Australian Consumer and Competition Commission have warned of – aren’t imminent,” federal Energy Minister Chris Bowen said.

The supply concession by Australia’s gas industry comes just a couple months after Labor moved to weaken its initial plan, which had been the catalyst for a major stand-off between the two sides.

Australian Petroleum Production & Exploration Association chief executive Samantha McCulloch said the government had listened to industry’s concerns but said she wanted to see the final text of the document.

“The announcement today suggests that the government has taken on board some of the industry’s feedback, however we await the final text of the code to fully understand whether the industry’s concerns and recommendations have been addressed,” Ms McCulloch said.

Labor last year imposed a cap on uncontracted gas at $12 a gigajoule and moved to establish a mandatory code of conduct that would force gas to be sold at “a reasonable price”.

Gas developers said the legislation exposed it to unacceptable risk, especially around what constitutes as reasonable, and the intervention failed to recognise the swathes of capital developers put at risk to underpin exploration and development. As a result, several new projects were shelved, exacerbating concerns about a forecast east coast shortfall in the coming years.

To break the impasse, Labor in April offered several concessions in its draft release of the code of conduct, especially around the reasonable price provisions, that tempered tensions.

Critics of the government intervention said Labor had, by cementing the concessions in the final version of the code of conduct, admitted its original error.

“While they won’t admit their mistake, it appears the government has developed some recognition they bit off more than they could chew on gas policy over the last six months, and are now walking back large parts of their gas price fixing ambitions which were always poorly thought through and unworkable,” Credit Suisse energy analyst Saul Kavonic said.

Gas users, however, will be relieved by the apparent truce. Boosting domestic supplies is a major lift for Australian manufacturers especially, many of whom have said they would not remain viable without new, cheaper supplies.

An increase in gas supplies will also safeguard Australia’s electricity network. Gas in Australia is typically used as a so-called peaker, with plants fired up when demand is strong in the evening and on cold mornings. But during periods of intense demand, when Australia’s ageing coal-fired power stations suffer outages, or even during so-called renewable energy droughts, gas-fired power stations will run nearly around the clock.

But few new gas power stations are being built as developers struggle to obtain supply agreements, stoking concern within Australia’s energy industry about what will supplement renewables, which are expected to account for more than 80 per cent of the grid by the end of the decade.

While tensions between Labor and the gas industry over the code of conduct have seemingly eased, it remains unclear whether developers will resume work on stalled projects.

“The number one test will be whether the Code delivers the confidence producers need to make the urgent investment in new gas supply necessary to avert future shortfalls and deliver the reliable and affordable energy needed by all Australians,” Ms McCulloch said.

Senex Energy, owned by South Korea’s Posco and Gina Rinehart’s Hancock Prospecting, earlier this year suspended its proposed $1bn Atlas project in Queensland, while Cooper Energy has delayed a go-ahead to expand its Otway gas project off Victoria.

Developers have said they would wait until the final version of the code before making a decision, but the gas industry is also feeling renewed pressure from other recent legislative efforts.

In March, Labor secured Greens support for the centrepiece of its carbon emission reduction plan, but only after including a stipulation that new gas projects developed to supply existing LNG plants be net zero carbon from the outset.

That will be particularly onerous on several proposed gas projects, which are also grappling with increased demands to consult with local landowners after an unexpected court ruling last year which overturned a previous environmental approval.