Labor savaged over ‘anti-business’ intervention in energy markets
A string of big name investors and energy players have hit out at Labor’s intervention into energy markets, a move designed to calm soaring prices.
One of Australia’s most prominent energy investors, Allan Gray, has savaged the Albanese government’s intervention in energy markets as an ill-conceived policy that picks winners, adding to a growing backlash over Labor’s “anti-business” legislation.
The $9bn Allan Gray — a major investor in Woodside Energy, Origin Energy and Santos — said it held “significant reservations” over the government policy, which includes a range of measures such as price caps and a mandatory code of conduct to ease soaring tariffs.
“Setting a price cap and a reasonableness test will only make gas more valuable in the future,” Allan Gray portfolio manager Suhas Nayak said in a submission to the government. “That will dramatically reduce the incentive of producers to produce today because they may as well wait for higher prices.”
US oil giant ConocoPhillips also weighed in and accused the Albanese government of being “anti business” with its controversial intervention significantly hiking the risk of investing in Australia.
“Capping the price at which a business can sell its product or service, and having only two days to allow that business to consult on it, is not genuine consultation. This is anti-business behaviour that significantly increases the risks of investing in Australia,” ConocoPhillips Australia president Dan Clark said in a statement.
A string of the industry’s biggest players including Woodside, Origin and BHP have hit out this week at the legislation, but a combative meeting with the Prime Minister on Wednesday with a raft of high profile chief executives was not viewed by those present as likely to sway the government’s position.
Labor plans to cap domestic wholesale gas prices at $12 per gigajoule during 2023, while the price of thermal coal would also be capped in the east coast market at $125 a tonne.
But Mr Nayak questioned why some companies such as fertiliser producer Incitec Pivot — where Allan Gray holds a stake — should benefit from the arrangement through reduced domestic gas costs.
“With fertiliser prices set internationally, this company will, in the long-run, benefit from high international gas prices while gas producers are not allowed to. This does not appear to be a sensible outcome,” Mr Nayak said. “There are other companies in other industries that will have a similar government-gifted benefit.”
However, explosives and chemicals group Orica said prices were too high for industry.
“Closer to home, there is no doubt that, as one of the world’s largest exporters of natural gas, the price for local industry is far too high,” Orica chairman Malcolm Broomhead said. “We welcome the federal government’s ongoing consultations with producers and consumers like Orica on how the industry can deliver reliable supply and sustainable pricing of gas during the transition to cleaner energy sources.”
Conoco — which owns 47.5 per cent of Queensland’s Australia Pacific LNG gas export plant with takeover target Origin Energy and China’s Sinopec — said a range of measures including price caps and a mandatory code of conduct would worsen a domestic gas crunch.
“Such heavy-handed regulation rushed through with next to no consultation is not conducive for investment in Australia, regardless of the industry,” Mr Clark said.
“The government has missed the mark with this policy. It is unlikely to lower gas and energy bills for households and manufacturers. This attack on the gas industry will actively discourage further investment to find and develop additional sources of gas at a time when Australia is crying out for affordable and reliable energy.
“The price-based intervention through the Emergency Price Cap Order and Mandatory Code of
Conduct will negatively impact Australia’s reputation as a stable, free market economy with regulatory certainty. It will also undermine investor confidence in existing and potential new Australian developments.”
BHP also added to a business backlash, saying the move will distort investment and fail to improve energy supplies.
The national cabinet’s sweeping market intervention has caused shock among energy producers with a combination of price caps on gas and coal and a new code of conduct that could result in a requirement for gas to be permanently sold at a reasonable price.
“The proposed measures will not solve underlying issues around energy supply availability, and will potentially distort and discourage longer-term investment,” BHP’s president Australia Geradline Slattery said.
“The proposed ‘reasonable price provision’ also creates significant uncertainty for market participants well beyond the immediate inflationary period. The government should, at the very least, put in place a time limit or framework for what triggers would lead to regulations being eased.”
Woodside Energy and Shell this week suspended talks with buyers to supply new gas into Australia’s east coast, blaming the federal government’s series of measures, which it warned could lead to shortages and gas rationing.
The Prime Minister also said this week his government will consider adopting a national gas reservation policy as a longer-term solution to drive down energy prices.
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