It is likely today that the Climate change and Energy Minister Chris Bowen will announce an extension to the $12/GJ cap on wholesale gas. Currently the gas caps will expire at the end of the year. Following the release of the draft mandatory code of conduct the market will have several weeks of consultation.
Energy producers are likely to be concerned over an extension or possibly permanent changes to the wholesale gas. Energy producers will also be concerned that changes will impact the pricing of long-term deals as it is likely a reasonable pricing clause will be included.
Under the reasonable price provision, gas companies could only charge a price based on the cost of production plus a reasonable margin. The reasonable price does not consider the capital invested during exploration and development of projects. Gas buyers will be able to challenge the price of contracts via a formal dispute process. The dispute process is designed to determine what the ‘reasonable’ price should be.
While the extension to the cap mechanism will provide certainty for energy users, energy producers remain in a holding pattern.
Gas producers are not finalising new gas supply contracts for 2024 until the government confirms what the impact of the code will have on pricing.
The federal government have also set the expectation that the federal budget will include a Petroleum Rent Tax. The Australian Petroleum Production & Exploration Association (APPEA) have shared with its members concerns that changes to the taxing of gas producers will add $100B of tax receipts to the government.
To appease the gas production sector, it is expected the new code will allow for exemptions. New projects that add supply for domestic use may qualify for exemptions from any specific pricing provision.
APPEA said the code “must recognise the importance of gas in a cleaner energy future, and the need to ensure settings which enable investment in new supply to avoid forecast shortfalls and put downward pressure on prices”.
Gas industry developers continues to warn the broader industry that deterring investment in new gas supply will harm the supply to manufacturers and reduce the secure of supplies of electricity across the NEM.
Beach Energy’s chief executive has said that getting the terms of the code wrong could imperil Australia’s transition to low-carbon energy given the role gas plays to support renewable energy.
At the end of the day changes to the industry need to benefit producers, end users and ensure gas and electricity security is achieved. While international cost pressures are impacting the gas and electricity industry. The continued development of gas resources are required to provide gas the opportunity to be the transitional fuel as Australia strives to its Net zero emission targets.