Shell Resumes Gas Supply to Australian Market

A photograph taken on March 8, 2022, shows the logo of energy giant Shell at a petrol station, in Bochum, western Germany.(Ina Fassbender/AFP via Getty Images)

Global energy giant Shell has lifted its suspension on new gas contracts to Australian businesses a week after the competition watchdog warned it would penalise companies that breach the temporary gas price orders.

Following a near six-week freeze on gas talks in response to the federal government’s emergency cap on wholesale gas prices at $12 per gigajoule, Shell is offering an additional eight petajoules of gas to the domestic market.

“Typically, for the majority of the market, retailers and customers contract gas well in advance of the required supply period,” Shell said in a statement.

“However, in light of the significant ongoing regulatory changes impacting the gas market, QGC (Queensland Gas Company) believes it is important to offer additional gas for delivery in 2023 under an Expression of Interest (EOI) at this time.”

Shell, the operator of QGC, anticipates that additional supply will be on offer to the market later in the year.

With the resumption of talks, Shell repeated its call for the government to create a policy aimed at encouraging new supply.

“Squeezing gas from the north to the south is neither a sustainable nor an affordable way to supply customers in southern markets,” it said.

Currently, Queensland is providing 80 percent of the gas supply for the east coast gas market, which covers every jurisdiction except Western Australia and the Northern Territory. It also covers almost 90 percent of the Australian population.

“We need to shift from the current patchwork of competing and inconsistent regulatory interventions with their unintended consequences to solutions which will deliver long-term energy security and prosperity for Australians,” Shell said.

On Dec. 14, the company had paused its EOI process to supply an additional 50 petajoules of gas to customers over the 2023-24 period, saying the new law did little to address the underlying supply problems with the market.

“We look forward to continuing to supply our customers and investing in the energy Australia needs to transition to net-zero, including gas, wind, solar, and batteries. But we must have a stable regulatory and policy environment to create the right signals which encourage this investment,” Shell said in a previous statement.

Uncertainty Remains Despite Guidance

The Australian Competition and Consumer Commission (ACCC) published its interim guidance on Jan. 17 to help the gas industry comply with its new obligations.

Companies that breach the order will face a fine of $50 million (US$35 million), three times the value of benefits obtained, or 30 percent of turnover during its period of misconduct.

However, after reviewing the guidelines, Samantha McCulloch, CEO of the Australian Petroleum Production and Exploration Association (APPEA), said they did little to resolve the industry’s uncertainties.

“The interim guidelines re-enforce the disconnect between the policy and the operations of the Australian gas market in practice,” she said on Jan. 19.

“With up to $50 million penalties, it is entirely reasonable for the industry to require certainty of the rules under which it is being asked to operate. But the government is still writing the rule book.”

McCulloch called on the government to take note of the law’s unintended consequences.

“As the Code of Conduct process advances, we hope that lessons will be learned from the price cap experience, where poorly conceived interventions are creating uncertainties and, in turn, damaging and immediate impacts on the functioning of the market to the detriment of consumers,” she said.

The federal government introduced the price caps on Dec. 23, 2022, in response to soaring energy prices. The policy will be reviewed six months after its implementation.

It applies solely to the wholesale gas market, where 2022 spot prices across the National Energy Market reached record highs in winter, more than tripling compared to 2021 (from $58 to $216 megawatts per hour), while also being highly volatile (pdf).