Labor’s gas plan a potential risk to supply which will hurt Queensland producers, says Credit Suisse
Labor’s intervention plan to ensure enough affordable domestic gas on the east coast of Australia risks thwarting supply, says Credit Suisse.
Labor’s plan to lock in a long-term price intervention to ensure enough affordable domestic gas on the east coast of Australia risks thwarting supply, leaving Queensland LNG producers potentially worse off under the mandatory code of conduct, Credit Suisse says.
The federal government is expected to issue the exposure draft for its mandatory code of conduct soon, and the industry is on alert over a clause specifying the need to strike “reasonable pricing” deals with users on a permanent basis.
Top gas producers have been holding off finalising new supply contracts for 2024 until the government unveils its code due to concern that a temporary year-long cap of $12 per gigajoule could be used as a long-term pricing reference as part of the latest policy intervention.
Credit Suisse said there was concern about price controls ultimately hindering supply.
“The east coast gas market is now well down the road of price controls, potentially with government discretion enabling deals to be cut with select industry players across a range of issues,” Credit Suisse analyst Saul Kavonic said.
“As Australia embarks upon effectively permanent price fixing policy for gas – even with some of the sharper edges watered down – the result will be more interventions, shortages and rising energy security risks in the years ahead in our view.”
It sets the scene for a tense tussle before the federal budget on May 9. Oil and gas producers are already bracing for Treasurer Jim Chalmers to shake up the petroleum resource rent tax as part of an overhaul of the resources sector.
The code may allow new projects that add supply for domestic use to qualify for exemptions from any specific pricing provision, sources told The Australian, It is a move which would potentially leave Queensland LNG producers as the most exposed to the new policy impost.
“It is reported the government may enable exemptions from the price cap in an attempt to try and foster new supply. The details of what qualifies for the exemption then becomes very important,” Mr Kavonic said.
“This could enable lots of government discretion that can be used as leverage to cut deals with select industry players on a range of issues and could likely see some local players in a more advantaged position versus the Queensland LNG players being more impacted.
“Shell, ConocoPhillips and Chinese buyers may end up worse off in our view.”
Companies such as Woodside Energy and Senex have said they would wait to see the details of the mandatory code of conduct before finalising sales agreements for 2024, effectively stalling new supplies entering the market.
Figures from the competition regulator in November 2022 showed Australia’s big retailers offered a dozen contracts between $30/GJ and $40/GJ, still more than triple the price from 12 months earlier.
Gas-reliant manufacturers said those tariffs would send them out of business.
Prices have since retreated substantially, although some users who failed to strike contracts last year remain aggrieved at paying high rates on spot markets.