Energy Sector Calls on Government to Abolish Wholesale Gas Price Caps

Blue flames rise from the burner of a natural gas stove in Orange, Calif., on June 11, 2003. (David McNew/Getty Images)

The Australian oil and gas industry has called on the federal government to remove the wholesale gas price cap to prevent shortages across the country.

This comes after a recent report by the consumer watchdog indicated that southern states would be subject to significant shortages as early as 2027.

In a submission, the Australian Energy Producers (AEP), a peak industry body, urged the government to use the 2024-2025 federal budget to end the market intervention measures it introduced in the 2022-2023 financial year.

In December 2022, the Labor government imposed a wholesale gas price cap to tackle soaring domestic energy prices following the war in Ukraine.

Under the measure, the government limited the wholesale gas price sales point produced by East Coast companies to a maximum of $12 (US$7.8) per gigajoule for 12 months.

While the government expected the policy to lower gas price increases by 16 percent in the 2023-2024 financial year, companies and energy experts warned that the price cap would hurt domestic energy supplies on the country’s east coast.

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As the duration of the price cap passed, the AEP believed it was time for the government to lift restrictions on the gas sector.

“After more than a year of policy instability, government interventions, and project approval delays, a recalibration of the policy and investment environment for natural gas is needed to secure our energy future,” said AEP CEO Samantha McCulloch.

The AEP said price controls must not become a permanent fixture of the energy market and that the government should devise a plan to return the market to normal and provide incentives for new supply ahead of the scheduled 2025 review of the Code of Conduct.

The peak industry body also called on the government to unlock more land for oil and gas exploration, which has been suspended since August 2022.

“The release of new offshore petroleum exploration acreage is long overdue, and this annual process needs to get back on track to maintain our domestic and regional commitments,” Ms. McCulloch said.

“New gas supply is urgently needed from coast to coast to ensure reliable and affordable energy for homes and businesses,” she said.

“We are calling on the federal government to work with gas producers, energy users, and state governments on an action plan to bring on new supply to address near-term structural shortfalls.”

Gas Market Situation

According to a recent report by the Australian Competition and Consumer Commission (ACCC), since the introduction of the price cap in December 2022, producers appeared to have been selling gas under short-term contracts for 2023 supply at, or below, $12 per gigajoule.

The prices offered by energy wholesalers for 2024 supply plunged 45 percent to $14.60 per gigajoule from February to August 2023, down from the record high of $49 per gigajoule during the worst of the global energy crisis in August 2022.

Meanwhile, the prices offered by retailers also dropped 21 percent to $19.50 per gigajoule in the same period.

A tourist photographs the gas production area at the Woodside operated North West Shelf Gas Venture in Western Australia, on June 16, 2008. (Greg Wood/AFP via Getty Images)

“The combination of the government’s emergency price cap and lower international LNG prices has resulted in Australia’s domestic gas prices falling significantly since the highs of last year,” ACCC Commissioner Anna Brakey said.

While the report said there would be sufficient gas supply across the East Coast in 2024, it was forecasted that southern states would face significant shortages from 2027.

“Additional sources of gas supply will be needed over the coming decades to meet current demand projections and support Australia’s transition to a renewables-based energy system,” the ACCC said.

“Without the development of new gas fields, pipelines, and potentially LNG import terminals, or without a significant reduction in demand, the east coast will experience sustained gas shortfalls.”

The AEP’s statement comes just days after the opposition accused the Labor government’s “renewables only” policy of inflating electricity and gas prices.

Opposition Leader Peter Dutton cited a 20 percent increase in electricity prices and a 29 percent increase in gas prices in the past year, blaming them on Labor’s aggressive transition to net zero emission via renewable energy.