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Federal Budget 2023 – A shock to the Gas Industry

Under a tightly embargoed budget speculators and hedgers alike could be forgiven for worrying the 2023 Federal budget hid an unknown shock, on top of a Liddell closure, Bayswater trip and extended outages. Last week’s market uncertainty was definitely not dampened by the little information coming out of Hon Dr Jim Chalmers MP’ office.

However, there was good news to be had, in contrast to the October 2022 budget which forecast a deficit of $36.9bn for this financial year the Hon Dr Jim Chalmers MP was almost giddy to announce a surplus of $4bn, it is the first in 15 years, yet is everything that glimmers actually gold?

Little was made of the fact 20 per cent of the surplus came from increased commodity prices, a nod was made to the Ukraine crisis but little to the other drivers and opportunist behaviour which has been within our market for the past 12 months. There was certainly no mention of the huge windfalls the treasury gained from the commodity industry.

The Gas and Coal caps were mentioned but there has been no discussion of the Coal Cap either being extended or removed in December 2024 when it expires. In contrast, the Gas cap has been confirmed to remain until 2025 and as such the potential for a market move in the summer months is still possible.

Overall, the budget was light on Energy for large business, the most focus was on infrastructure for Electric Cars and cost of living relief for residential and small businesses. The creation of a National Net Zero Authority was predicted under the Chubb review and therefore no shocks were seen.

There was a slight nod to a new Hydrogen head start program, giving $2bn to the scheme and more investment in green industry, which was unsurprising. A curious section was on a Capacity Investment Scheme “unlocking over $10 billion of investment in firmed-up renewable energy projects up and down the east coast” as a throw away comment and I am sure a few more details will emerge over the next few days – this one did pique my curiosity.

Undoubtably in the commodity space the biggest losers this evening were the Gas companies, between the extension of the Gas cap at $12/GJ into 2025, increased taxes due to the extraordinary market conditions would follow, but a second stab at the inflated pie has come in the form of the Petroleum Rent Resource Tax. I think its mention was all of 3 seconds of the budget, yet this piece of legislation will increase the government coffers to the tune of $2.4bn over the forward estimates. On top of the Safeguard mechanism changes and power the greens had in ensuring many new gas projects do not get off the ground easily if at all, this is yet another cost to the industry. Yet in comparison to those enforced overseas, and especially in the UK, this was light touch, and it will be interesting to see if it is strengthened at all by the Greens, whom Labor will need to pass this through the house.

Overall, not a great deal of shock waves this evening, a budget which I am sure will be picked apart and a barrage of “inflationary pressures” will be dissected, yet overall, no real change to the status quo. Looking down the barrel of economic growth slowing to one and a half per cent in the next financial year, coupled with increasing wages it’s not the time to be throwing about cash, however hitting industry for half baked wins for those at the other end of the scale may not be enough to make any new friends and certainly could lose this government more.