Energy users and ex-ACCC boss praise government for staring down ‘bullies of the gas industry’

Industry argues capping gas at $12 a gigajoule risks future investment but experts say price is top end of range forecast before invasion of Ukraine

Energy users and the former boss of the competition watchdog have congratulated the Albanese government for staring down the “bullies of the gas industry” in a bid to lower domestic energy bills.

The federal government last week announced an energy relief plan that would cap coal and gas prices and deliver $1.5bn in assistance to struggling lower-income Australians.

Andrew Richards, the head of the Energy Users Association of Australia, said Labor had been prepared to “stand up to the bullies of the gas industry”.

“They bully governments, they bully their customers, they bully regulators and it’s time someone stood up to them and said ‘Enough’s enough. I’m happy for you to make excessive profits on your international sales, by all means do that, but you’ve got to make sure that domestic customers aren’t being screwed over,’” Richards said.

The government plans to cap domestic gas prices at $12 a gigajoule and black coal at $125 a tonne. In particular, there is the prospect of a longer-term intervention to ensure gas producers don’t enjoy excessive profits at the expensive of local consumers.

The gas industry had been happy to sell their fossil fuel at $10/gj until just over a year ago, Richards said on Monday. Now, members of his organisation were being offered contracts of $45/gl or more, a price that was unsustainable when production costs were $5 or less.

Rod Sims, the former head of the Australian Competition and Consumer Commission, said letting short-term energy spikes caused by Russia’s invasion of Ukraine drive Australian energy users into bankruptcy was “not good for the social fabric of the community”.

“Asking companies that are making an enormous amount of money on their exports to make sure that they serve the domestic market at a sensible price – that, I think, is inherently a sensible thing to do,” Sims said.

The former competition chief said calls for governments in Australia to increase supply wouldn’t have an impact for as long as five years.

“More supply won’t come about in time to deal with this short-term crisis,” he said. “It’s a way of saying ‘Do nothing’.”

The federal treasurer, Jim Chalmers, said on Monday the $12 price cap for gas would be temporary and there would be “an ongoing regime for reasonable pricing”. Legislation for the gas cap will go before parliament this week before “a couple of months of consultation” to determine a longer-term industry framework.

“[T]hese companies are doing incredibly well on global markets,” Chalmers said. “We support the industry but we don’t want these high prices to hollow out local industries and put extra pressure on families if we can avoid it.”

Labor is negotiating with the Greens, crossbench and Coalition on the plan, with parliament to consider the legislation on Thursday. The Greens have opposed any compensation being paid to fossil fuel companies while the prime minister, Anthony Albanese, said the plan did not provide any for compensation but admitted “payments” could be made to encourage producers to maintain supply.

Independent senator David Pocock is considering his position while Jacqui Lambie and Tammy Tyrrell have backed the plan.

“On the face of it, this bill will give relief to those who need it … I’m not going to stand in the way of people getting the help they need,” Lambie told Guardian Australia.

The Coalition’s position is less clear. The opposition leader, Peter Dutton, has strongly criticised the price caps, claiming it would stifle investment and restrict supply.

“We’re not going to support a plan that is going to have devastating impacts in the medium and long term on our economy. You can’t trust this prime minister and he doesn’t have the instinct to make the calls on the economy,” Dutton said.

But several MPs told Guardian Australia they expected the party would ultimately not vote against the plan. Liberal MP Russell Broadbent said: “I won’t be voting against a benefit to a pensioner. End of story.”

Other Coalition members, who declined to speak on the record as they were still awaiting detailed briefings, said they had concerns about price caps on coal and gas but government action to reduce power bills was needed.

On the share market, stocks of big energy firms fell on Monday, with Origin losing almost 8%, AGL 2.4% and Whitehaven Coal 2%. The consortium planning to buy Origin for $18bn told Guardian Australia it was proceeding with its due diligence.

The price caps were aimed in part at lowering the cost of electricity since gas and coal often set the wholesale spot price. Futures for wholesale power prices have been falling for about the past month as the government talked up possible intervention, said Bruce Macfarlane, the interim chief executive of energy data firm Energy Action.


“Customers are locking in these lower rates” ahead of the new year, Macfarlane said, adding that whether recent falls would be sustained depended on how future policy plays out.

Samantha McCulloch, the CEO of the Australian Petroleum Production and Exploration Association, said the scope of the plan was “far more extensive” than it anticipated.

The ongoing regulation proposed beyond the one-year price caps “really dismantles the open and competitive operation of the Australian gas market”, she said.

“These price caps send a signal that the government [can] change the rules of the game at any moment,” McCulloch told ABC radio on Monday. “It’s sending the wrong signal to future investment” in an industry that had invested $400bn in the Australian economy over the past decade.

Saul Kavonic, head of Australian research for investment bank Credit Suisse, said the government had “broken trust” with the gas industry.

“We’re going to see a strike on investment,” Kavonic told Sky News. “The government’s essentially crossed the Rubicon here”, he said, potentially setting up “blackouts ahead of the next election”.

Big energy companies, though, were sending mixed signals or none at all. Major gas producer Santos, for instance, said it wasn’t commenting for now, while AGL said “increasing cost-of-living pressures, including the rising cost of energy, are a concern for all Australian households and businesses”.

AGL welcomed “the government’s targeted support for low- and medium-income households” and said it supported the government directly helping households and other energy consumers that were struggling with affordability, particularly vulnerable customers”.

Origin’s CEO, Frank Calabria, said his company understood the desire to act to lower energy prices for households and businesses and assist those least able to afford them.

“However, we are concerned that interventions like price caps will have the opposite impact to that intended, discouraging much-needed investment in new gas resources and causing considerable concern about future gas supply, likely driving up prices over the longer term,” he said.

Calabria was also worried about the “limited opportunity to engage with governments” with only a few of days to make submissions on the caps.

“We will look to participate in consultation where there is an opportunity for genuine, constructive dialogue on a package of legislation that will have wide-ranging impacts on the functioning of Australia’s energy markets.”

Tennant Reed, a senior energy policy analyst with Ai Group, said it had “been very clear for months that there are lots of ways to try and skin this cat of global energy crisis prices … none of them is very neat, very attractive, very pain-free”.

A $12/gj price was at the upper end of the price range that was expected pre-war over the long term, Reed said. Such a price “should not be a disaster for anybody’s investment case on the supply side of the gas market, and if it is, then it probably wasn’t a very good investment”.

“If it wasn’t a conversation about price caps, it would be a conversation about either or both volume of export caps or high taxes on export revenues in order to compensate domestic users,” he said.

“The alternative to all those things was to just let the population of one of the largest energy exporters in the world experience energy poverty and extraordinary impacts on the cost of living for households and the cost of doing business for our industry. That was never going to be viable.”


Peter Hannam and Josh Butler

The GuardianTramp

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