PERTH (miningweekly.com) - The Australian Petroleum Production and Exploration Association (Appea) has requested an urgent meeting with the Australian Prime Minister saying intervention announced at the end of last week was "far more extensive" than announced.

The federal government on Friday last week announced a temporary cap on both gas and coal prices as part of its Energy Price Relief Plan.

To tackle the high gas prices, the Commonwealth is introducing a 12-month emergency gas price cap, to be set at A$12/GJ on new wholesale gas sales by east coast producers subject to consultation.

The cap will apply to new wholesale contracts with east coast gas producers for 12 months from December 2022, with a review by mid-2023. Gas from undeveloped fields and gas sold through the short term trading markets and the Victorian declared wholesale gas market will be exempted from the cap, minimising the impact on supply incentives and short term price signals in these important balancing markets. 

A mandatory code of conduct would also be introduced for the wholesale gas market that includes a reasonable pricing provision, accelerating the introduction of the Australian Domestic Gas Security Mechanism, and boosting resources for the Australian Competition and Consumer Commission (ACCC) for implementation, monitoring and enforcement.

The code will apply to contracts between gas producers and their customers in the east coast market, and the government will undertake consultation on the scope of the code and whether it should be expanded to wholesale contracts sold by other market participants. The ACCC will continue to closely monitor and report on the behaviour of all market participants, including energy retailers, and take enforcement action where required to ensure competition across the market.

The code will include a provision for reasonable pricing. This will provide a basis for producers and buyers to negotiate domestic wholesale gas contracts based on guidance on reasonable pricing from the ACCC, which will reflect the long-run costs of domestic production and an appropriate return on capital. If producers and buyers are unable to agree, they may seek a binding arbitration determination.

Meanwhile, the New South Wales and Queensland governments are taking action by effectively setting ceilings for the price of coal used for electricity generation to A$125/t, with the Commonwealth to contribute to costs.

The government released a consultation paper setting out the measures and was seeking feedback from industry and stakeholders to inform the final design, prior to implementation.

Feedback is also sought on the draft Competition and Consumer Amendment (Gas Market) Bill 2022 and Explanatory Memorandum, creating an enabling framework for implementation of the mandatory code and price cap.

Consultation on the price cap (including the draft order) will close on December 15 with legislation to be introduced this year, while consultation on the mandatory code, including the reasonable pricing provision, will remain open until February 7, and it will be implemented via regulation in early 2023. 

Appea said on Monday that it had asked for an urgent meeting with the Prime Minister, saying the new measures would dismantle the gas market across the whole of Australia.

“The measures include regulating gas prices permanently under its mandatory code of conduct, despite the government painting its $12/GJ price cap as a temporary, short-term measure.

“The Draft Bill would confer unprecedent powers to intervene in the gas market. Amongst other things, the Bill proposes allowing price caps to be extended and renewed, for the government or government agencies to directly determine price and the terms of and conditions of gas supply agreements, compulsory and mandatory mediation and arbitration provisions on both producers and customers, forcing supply into the gas market, including potentially by breaking of commercial contracts, the revelation of commercially sensitive information, extensive new regulations applying to all aspects of conduct in the gas market, and extraordinary compliance obligations and penalty provisions,” Appea said in a statement.

“In addition, the provisions would appear to apply across Australia, and not just to the east coast market.

“In doing so, the Bill proposes bypassing genuine consultation processes and good legislative and regulatory governance arrangements.”

Appea said on Monday that taken together, the proposals undo 20 years of gas market and broader energy market reform, replacing the operation of what was an open and competitive gas market with heavy handed government regulation that places the operation of the market itself into the hands of government agencies.

The package also does nothing to bring on new supply, which is the enduring and sustainable way to ensure competitive prices in the gas market.

Appea CEO Samantha McCulloch said the interventions would have a devastating impact on investment, reduce new supply and push up household and business gas prices.

“The oil and gas industry welcomes relief from energy prices through the proposed energy rebates but a price cap combined with the emergence of other damaging measures will ultimately push up prices because they will undermine investment confidence and reduce new supply,” she said.

“The industry has been given only a two-day consultation period before the Australian Parliament is asked to vote on this important legislation which risks the nation’s energy security and making the energy system pressures even worse.

“Appea seeks an urgent meeting with Prime Minister Anthony Albanese so we can address the serious concerns we have over his proposed dismantling of the gas market and Australia’s reputation as an open, market-based economy.

“The government said it was introducing a temporary price cap – but now we learn those caps can be extended and its mandatory code of conduct will have the ongoing power to regulate prices permanently.

“The powers provided through the Bill are extraordinary, providing for the government to control the entirety of the market and intervene in an essentially unlimited way. This mandatory code comes without any consultation and only 71 days after a voluntary code was launched based on two years of extensive consultation between industry, government and customers.

“The government didn’t give the voluntary code, or the heads of agreement with east coast liquefied natural gas (LNG) exporters, a chance to work and instead succumbed to the undermining efforts of some ministers, unions and customers.

“Recent gas supply agreements confirm competitively priced gas is being secured by manufacturers and the market is working.”

McCulloch said the package of measures, partly inspired by the ACCC, was misguided considering the ACCC’s own recent price updates for producers and retailers.

“Applying the cap to wholesale prices paid to producers is ill-considered when recent ACCC price data showed average prices paid to producers over the past 12 months rose 11% while those to retailers rose 95%,” she said.

She pointed to analysis released by EnergyQuest which showed that gas price caps would lead to damaging economic consequences including higher prices after investment confidence was hit and future supply was reduced as investors went elsewhere.

The negative impacts included reducing exploration, development of gas resources, the economics of gas storage in Victoria and the viability of LNG imports on the east coast.