PERTH (miningweekly.com) – The industry body for the oil and gas sector this week said that the price cap placed on the industry by the federal government at the end of last year, was making it difficult to execute gas supply agreements.

The Australian Petroleum Production & Exploration Association (Appea) CEO Samantha McCulloch said in a statement to the Select Committee on Cost of Living, that while the industry was doing what it could to work within the interim guidelines provided, there remained continued uncertainty around compliance, which is hampering efforts to execute gas supply agreements this year, given that any inadvertent breaches would attract a potential A$50-million penalty. 

“We have seen how disruptive this intervention has been, while delivering limited, if any, actual cost of living relief to consumers,” she added.

Parliament before Christmas 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.

The Australian Competition and Consumer Commission (ACCC) earlier this year released interim compliance and enforcement guidelines for the gas industry on the new Gas Market Emergency Price order.

McCulloch said that the government interventions into the gas market were exacerbating existing issues around high energy prices and tight supply.

“The 12-month price cap and ongoing price regulation proposed as part of the mandatory Code of Conduct, have brought enormous uncertainty to the market. These measures will result in less investment in supply, ultimately increasing gas prices – which is the opposite of what the ACCC says is needed. 

“We have already seen investment in new supply being halted due to these interventions. 

Analysis by ACIL Allen suggests that the investment uncertainty associated with these measures could actually increase gas prices in the long term by as much as 40%, over and above where they would’ve been without government intervention,” she said.

“We hope that the lessons learned from this experience will be applied to the mandatory Code of Conduct consultation process which is still ongoing. 

“In particular, the proposal in the mandatory Code that prices will be set at the discretion of the regulator and be subject to change at any time, rather than being determined by the market, has a particularly chilling effect on investment,” McCulloch added.

She added that the impact of intervention in the gas market was not limited only to the gas market. 

“Investors across the economy, including overseas investors who have contributed so much to the resilience of the Australian economy over the last two decades, are watching what is happening with great concern. 

“Capital is mobile and if Australia loses its reputation as a safe, dependable investment destination, it will have significant repercussions across the economy and on the cost of living for all Australians. 

“This is especially the case given the investment we need to grow the economy and maintain secure affordable energy supply, while we transition to net zero.”