The capping of prices for Australia's gas became Law today. Its significance can not be overstated. If energy supply runs out by being sold to the highest bidder, Australian business grinds to a halt, or becomes unviable. Households too suffer at every level. Energy and electricity created modern economies and the restriction of it can equally bring them down. That a resource-rich country like Australia can be faced with such an energy crisis beggars belief - but past policy mistakes are another story. The AiG reckons the new price-capping Law is just a first step on the ladder.
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| More hot air than gas? Producers are crying foul at new price capping laws (Pic: CSIRO) |
The Australian parliament passed legislation on Thursday 16th December, setting a price cap on natural gas for one year and providing AUD$1.5 billion in relief for households and small businesses hit by soaring energy costs mainly caused by Russia's war on Ukraine. The government won support from the Greens Party to pass the legislation after agreeing to provide funding in its next budget to help low-income households. The benefit should be felt by every printer, every signmaker in Australia, particularly on the East coast.
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| AiG CEO Innes Willox |
In response, Innes Willox, Chief Executive of national employer association Ai Group said in an announcement: "By passing legislation to enable temporary gas price caps the Parliament has taken badly needed action that will, for all its flaws, help energy users and soften the blow to Australia from events in Europe."
He continues: "The energy affordability crisis is certainly not over. Energy users are still set to face significant cost increases in 2023, particularly because so many contracts for energy supply in 2023 have already been signed. We should not overstate the immediate impact of these measures on energy costs, particularly for industrial gas users. Nearly all users will pay more for energy in 2023 than they did in 2021.
Lower gas prices on the horizon
"But with wholesale electricity futures for 2023 falling by around half since the Government signalled it would act, clearly costs for energy users are set to be lower than they otherwise would have been. Much further work will be needed.
"The detail of the reasonable pricing provisions of the mandatory gas code of conduct will be complex and fraught. The Government’s actions are highly interventionist and we need to be wary of the impact on future investments in energy and elsewhere. Unintended consequences are quite possible and they will take effort to avoid and manage.
"Price controls are not a long-term fix for our problems, and as with previous episodes when international conflict put the Australian economy under extraordinary strains, intense regulatory controls should give way to liberalisation as the emergency passes. However, continuing on the track we were on was unsustainable and the need for major government action was both obvious and well telegraphed.
"The Federal Government and the States are taking broadly welcome steps, including the gas substitution investments committed this week, to speed our longer-term supply- and demand-side energy transitions. While these also require great scrutiny and careful design, they will progressively reduce our exposure to the gyrations of global coal and gas markets. But Australia will need very large flows of domestic and international investment to transition our economy to net zero emissions and seize the opportunities involved in global energy transition. There needs to be a clear basis for those investments.
"At the same time we should remember that the overwhelming majority of Australian businesses are energy users, not energy producers. Their interests and their ability to invest with confidence are also significant.
"It has been clear for months that dramatic action would be needed to safeguard energy users of all sorts. That action has finally begun. The bottom line is that the sooner we can move from temporary measures to permanent and workable solutions to assist our energy transition, the better," concluded Willox.
Big fines for breaching price caps - producers cry foul
The price cap applies to new wholesale gas sales by producerfs. Capped at AUD$12 per GigaJoule, it is less than half the average price of AUD$26 perGJ in the third quarter. (Source: EnergyQuest).
Predictably, gas producers - mostly non-Australian-owned corporations making 'wartime profits' from Australian gas shipped offshore - are squirming at not being free to jack up prices as they see fit. One, Mr Kevin Gallagher, CEO of Santos LImited, even insulted Australia by calling the new Law "a Soviet-style policy ... a form of nationalisation." For the edification of the Scottish-born and Harvard educated Mr Gallgher, Australia, the country to which you migrated to in 1998, is nowhere remotely near 'Soviet-style' and your bilious rhetoric does little to endear you to your adoptive fellow countrymen, at any level. Apologise!
Update: The crying, howling wolfs of the Oil & Gas lobby, including Santos, have yet to explain why their shares are well up since the gas caps were announced - so much for 'destroying investor confidence.'
Exxon and Shell have issued similar anti-price cap statements while Australia's Andrew 'Twiggy' Forrest, owner of Squadron Energy, has taken a far more moderate line, acknowledging the need for Queensland gas producers to supply gas into NSW and Victoria at 'reasonable prices.'
Either way, gas wholesalers face fines of AUD$50 million or more if they are caught gouging and selling above the $12 per GJ benchmark for the next year. The same goes for coal producers whose wholesale price was capped at around half of pre-Energy Law levels, at AUD$125 per tonne.
There's an old saying in business: 'share the gain, share the pain.' It appears at this stage that gas energy producers are unwilling to do either.
Additional commentary by Andy McCourt. andy@wideformatonline.com
