PERTH (miningweekly.com) - The Australian Petroleum Production & Exploration Association (Appea) has warned that the government’s decision to cap gas prices would lead to shortages and ultimately higher prices for Australian households and businesses.

In an opinion piece published in The Australian on Friday, Appea CEO Samantha McCulloch said the impact of this far-reaching and unprecedented intervention in Australia’s gas market was already evident, as previously agreed financing for new gas supply is being withdrawn and contract negotiations have stalled.

“The uncertainty created by these reforms and measures to introduce a permanent, regulated rate of return severely undermines the case for investment in what is a high-risk, capital-intensive industry.

“Some of the most credible and experienced global sources repeatedly have warned how this reckless decision to take a sledgehammer to Australia’s gas industry will reduce supply and increase demand.,” McCulloch said.

Parliament this week passed the federal government’s Energy Relief package, which include a temporary price cap of A$12/gigajoule of uncontracted gas for a period of 12 months, a 12-month price ceiling on domestic coal of A$125/t in New South Wales and Queensland, and A$1.5-billion in targeted bill relief for businesses and households.

The plan also pledges long-term action to secure Australia’s energy future, including a new Capacity Investment Scheme and the continuing roll-out of projects under the Rewiring the Nation Fund.

McCulloch noted on Friday that while the industry wanted to see downward pressure on energy prices and targeted relief for households and businesses, price caps and ongoing price regulation would have the opposite effect to that intended.

“New independent modelling from economic advisory firm ACIL Allen finds the impact of this market interference could see wholesale gas prices up to 40% higher than if the market had been left to do its job.

“In the long term, households could pay up to an extra A$175 a year on gas bills while businesses cop a 40% increase relative to a scenario with no price caps and in which planned investment is able to proceed.

“The report also cautions that price caps will encourage additional consumption in the short term that could put significant strain on gas supplies. It warns of the potential for blackouts in Victoria as meeting peak day demand becomes more difficult due to delays in new supply coming online, McCulloch said.

According to the report, these higher prices and energy security concerns are a trade-off for short-term benefits that “may be nil or very minimal in the first instance”. It is this near-sighted, populist stance of the government that is at the heart of the industry’s concern.

“For the sake of a potential, if any, short-term fix, the government has dismantled a market that was working to deliver essential energy and that will play a critical role in transforming Australia’s energy systems towards net zero,” she said in the opinion piece.

“It has undermined the confidence to invest in an industry central to building Australia’s story of economic success – one that has been looked on with worldwide envy. The gas industry has invested hundreds of billions of dollars that today support 165 000 jobs along the supply chain, powers millions of homes and businesses, supports economic growth and delivers cleaner energy to our Asian neighbours.

“Between 2010 and 2020 alone, the gas industry invested an estimated A$473-billion in Australia, an economy traditionally viewed globally as a safe and stable place to invest.

“But the government’s actions this week have severely threatened investment confidence. The permanent regulation of gas prices through a mandatory code of conduct was done without consultation and was rammed through parliament in a matter of hours. This should alarm Australia’s business community, which expects to operate in an open, market-based economy.”

McCulloch said the package of gas market reforms passed on Thursday will only add to energy system pressures and limit the ability of the industry to respond to future calls to boost supply.

“The government now has unprecedented control over the Australian gas market, and with this must come accountability and responsibility. When investments in needed new supply are shelved and prices are higher, the government will have to explain why it ignored the warnings.”