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PERTH (miningweekly.com) – Australian oil and gas producers have called on the government to change the direction of the proposed mandatory code of conduct to allow investment in new supply to avoid shortfalls and put downward pressure on prices.
Along with a cap on gas prices introduced in December last year, the federal government also proposed a mandatory code of conduct 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.
Stakeholders have until February 7 to comment on the mandatory code of conduct.
In its submission, the Australian Petroleum Production and Exploration Association (Appea) noted the critical time for the sector after the ACCC last month warned of gas shortfalls from 2027 and recommended new supply to avoid upward pressure on domestic gas and electricity prices.
In contrast, Appea highlighted that the proposed approach to a mandatory code of conduct risks doing the opposite, undermining the case for new investment and creating a supply crunch.
“These are the worst possible reforms at the worst possible time for Australia’s cleaner energy future,” Appea CEO Samantha McCulloch said.
“These interventions will reduce investment and ultimately increase the risk of gas shortages and further price increases, the opposite of what the ACCC says is needed. 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.”
Appea has recommended three measures to guide reforms to put downward pressure on prices and avoid supply shortfalls.
First, Appea argued that the principles and processes agreed in the voluntary code endorsed by the government last September should form the basis of any mandatory code given it was never given a chance to work and was effectively torn up 27 days later.
“The voluntary code, agreed to after two years of good faith consultation involving industry, customers and government, and backed by the ACCC, addresses the key principles and inclusions of the proposed mandatory Code in a workable way,” McCulloch said.
The industry has also recommended that the market be allowed to work given the unintended consequences of permanent price controls.
“Permanently regulating prices can’t factor in the complexities of the market and will only slash competition, distort the market and risk energy security. This measure would see the government set the price at what they consider ‘reasonable’, with the option to change the rules at any time,” McCulloch added.
Finally, Appea recommends a flexible arbitration process where buyers and sellers decide how to do business instead of the proposed binding framework locking parties in before the fact.
“Sellers and buyers will not make billion-dollar decisions when the economics of their investment may be derailed by the outcome of a future arbitration process that is outside their control and can dictate when, where and how much gas is supplied, and at what price.”
McCulloch said the sector understood the challenges faced by businesses and consumers owing to energy system pressures and was committed to delivering competitively-priced gas.
She pointed to recent economic studies that had found intervention and price controls would drive up prices in the long term after investment in new supply diminished.
“ACIL Allen found wholesale gas prices could rise by 40% while households could face rises of up to A$175 annually because investment in new supply reduced,” she said.
“Appea and its members remain committed to working with government to find an effective, workable and sustainable way forward that ensures sufficient supply and puts downward pressure on prices.”