Government exemptions woos gas industry but code of conduct resentment remains

Gas developers, which have stalled work on new projects, are softening opposition to the Albanese government’s signature gas policy after a spate of exemptions.

Senex’s operations in the Surat Basin.

Gas developers, which have stalled work on new projects, are softening opposition to the Albanese government’s signature gas policy given widespread exemptions but questions remain over how quickly producers will approve new investment in supply deals.

Labor released the full text of its code of conduct to the market on Monday, which companies have begun scouring over to understand the extent of the government’s intervention.

Consultancy EnergyQuest said the code fails to change its forecast that the east coast gas market will be structurally short of supply by the end of the decade and attention would now turn to whether projects to add new supply would get the go-ahead.

“We expect there will be a degree of inertia for projects close to a final investment decision that were suspended when the market intervention was announced,” EnergyQuest said in a note.

“Senex’s decision on Atlas and Cooper’s decision on OP3D should be watched closely as if these projects don’t proceed quickly a downside risk for supply will have materialised.”

The industry has yet to give the code an endorsement by signalling intentions to proceed with new developments that were stalled when the policy was announced late last year.

The code of conduct will go a long way to determining whether a paralysis that has gripped the country’s gas market continues, a trend that would exacerbate the threat of an east coast shortfall.

Labor hopes the code of conduct – the centrepiece of which includes a cap on uncontracted gas at $12 a gigajoule until 2025 – will strike a balance between adding downward pressure prices for households and businesses without disincentivising much-needed new developments to fill a looming supply shortfall across NSW and Victoria.

Former APPEA boss Andrew McConville with Exxon Australia chairman Nathan Fay. Picture: Sharon Walker

Cooper Energy chief executive Jane Norman said the final text gives certainty to the company.

“We welcome policy certainty and stability, in the form of the gas code, to facilitate investment into new gas supply,” she said.

“Our aim is to support the energy transition by providing much-needed new domestic gas supply to the Southeast Australian gas market, complementing the growth in variable renewables and ensuring energy is affordable, reliable and lower emission for Australian businesses and households.”

Cooper Energy is one beneficiary as it produces less than 100 terajoules of gas a year, making it exempt from the price cap on uncontracted gas.

Such a provision was flagged in earlier versions of the code of conduct, but industry sources said a spate of other exemptions were also unexpectedly included. These were enshrined in the legislation, and can therefore not be revoked on a whim. Australia’s resources minister has also been given more powers in the final text, while a new explicit exemption for LNG imports was added.

While the gas industry will privately welcome the exemptions, insisting the sector is providing lucrative returns to government and recent price spikes were driven by supply issues – it will stoke criticism over the need for Labor to intervene in the first place.

Labor must incentivise new gas developments. Australia’s east coast gas market is facing a material shortfall in the next few years as traditional supplies run dry and proposed new developments struggle to secure regulatory and social licences.

Illustrating ever growing tight supplies, the Australian Consumer and Competition Commission said the east coast had sufficient supplies for the next 18 months, but it would be tight and likely dependent on favourable weather conditions.

Still, Australia’s gas industry remains frustrated by ongoing delays in regulatory permissions for projects, which executives say is indicative of the lukewarm attitude of the government towards gas.

Anthony Albanese earlier this year rejected allegations his government was not supportive of gas, insisting the fuel source was vital for manufacturing and allowing Australia to transition away from coal.