Anthony Albanese’s gas crackdown will shatter industry: energy chiefs

Anthony Albanese’s crackdown on gas producers will trigger supply shortfalls, smash investment and drive-up energy costs, according to business leaders.

Central to industry concerns is ‘unintended consequences’ of permanent price controls and forced arbitration between buyers and sellers, which companies say will damage competition and distort the market.

Anthony Albanese’s crackdown on gas producers will trigger supply shortfalls, smash investment and drive-up energy costs, according to business leaders who want the government to stick with the existing voluntary code of conduct and keep out of price negotiations.

The Australian Chamber of Commerce and Industry and The Australian Petroleum Production and Exploration Association have warned Treasury that a mandatory code of conduct and government-determined ‘reasonable price’ would shatter investor confidence in a gas market reeling from unprecedented intervention.

APPEA, representing gas companies including Santos, Shell, Senex, Woodside and BP, said the combined effect of a mandatory code of conduct and $12-per-gigajoule price cap were “the worst possible reforms at the worst possible time”.

After the Australian Competition and Consumer Commission last month warned of gas shortfalls from 2027 and urged governments to accelerate new investment and supply, APPEA chief executive Samantha McCulloch said tougher measures on the private sector would do the “opposite”.

APPEA chief executive Samantha McCulloch. Picture: Tom Huntley

“These interventions will reduce investment and ultimately increase the risk of gas shortages and further price increases,” Ms McCulloch said.

“As with the introduction of the temporary price cap – when markets froze and investment was spooked – the proposed mandatory code risks causing maximum disruption with minimal benefit to Australians.”

Central to industry concerns is “unintended consequences” of permanent price controls and forced arbitration between buyers and sellers, which companies say will damage competition and distort the market.

ConocoPhillips, which has invested more than $20bn in gas projects more than two decades, said a “code of conduct does not appropriately mitigate the risks associated with market intervention”.

The world’s largest independent exploration and production company has a 47.5 per cent stake in Australia Pacific LNG, which currently spends more than $2bn a year developing gas resources.

“The inadequacy of consultation process coupled with the severity of the regulatory measures … open the market to a range of unintended consequences. Global companies like ConocoPhillips will respond to the market signals set through government regulation,” ConocoPhillips Australia president Dan Clark told Treasury.

“We expect the mandatory code will have a range of consequences that will undermine business certainty. This will inevitably lead to a decline in investment confidence and ultimately new supply.”

Under the Albanese government’s energy market intervention in December, the commonwealth released a draft Competition and Consumer Amendment (Gas Market) Bill and launched a two-month consultation process with industry to devise a final design for a mandatory code.

The government wants the code to “address systemic issues within the wholesale gas market and guide participants’ behaviour”.

“As part of the code, a reasonable pricing framework will provide a basis for producers and buyers to negotiate domestic wholesale gas contracts at ‘reasonable prices’, which should reflect the cost of domestic gas production including a reasonable return,” Treasury said.

ACCI, which wants a national gas strategy to increase competition and improve the market, said the onus was on federal and state governments “removing restrictions on gas exploration and fast-tracking the approval process for new gas field developments”.

The industry group’s submission said the commonwealth should “develop new measures to improve transparency in price setting, including real-time information on the volume of available gas supply, gas price by regions, and details of costs of production and delivery of gas to customers”.

APPEA’s three recommendations to Treasury focused on ensuring gas prices are determined by the market and not the government, that a mandatory code is based on a “good faith reflection of the key principles and approaches agreed as part of the voluntary code” and protecting the arbitration rights of buyers and sellers to “decide how they do business”.

Ms McCulloch said the voluntary code, endorsed by the commonwealth and industry last September, wasn’t given a chance to work and was “effectively torn up 27 days later”.

Manufacturing Australia chief executive Ben Eade, who represents big energy users including BlueScope, Brickworks, Cement Australia, Tomago Aluminium, Incitec Pivot, endorsed the mandatory code of conduct and “reasonable price provision”.

“A reasonable price framework should act as a reference to assist negotiations and arbitration. It should have the effect of decoupling domestic gas prices from export gas prices, ensuring

Australian customers pay a price for gas that reflects costs of supply, and not a price that is based on scarcity of gas in other jurisdictions globally,” Mr Eade’s submission said.

“A reasonable price framework should seek to encourage negotiation and agreement around a

reference price without the need to proceed to arbitration. However, should negotiations fail, the reasonable price framework should be relied upon by the arbiter in making determinations.”

Manufacturing firms, who employ more than 100,000 workers, said a mandatory code was needed because “the existing voluntary code of conduct has not sufficiently addressed the above issues identified by the ACCC”.