Government backs new gas code to reduce price hikes

The Federal government is confident it will have access to sufficient supply to support its soon to be finalised Mandatory Gas Code of Conduct (Gas Code) for the Australian east coast.

The government has confirmed it has completed the design of the Gas Code with only a final sign-off to make it official.

The full Gas Code is scheduled to be released in coming weeks once legal drafting has been completed and the Federal Executive Council has ratified the instrument.

Gas supply concerns

Many in industry have suggested that the make-up of the new code, which includes a significant cut in gas prices, would create a decline in gas supplies into the system.

The leading local oil and gas industry lobby group, the Australian Petroleum Production and Exploration Association (APPEA), says it is important that the mandatory code of conduct recognises the critical need for investment in new gas supply to avoid future shortfalls in the east coast domestic market and to put downward pressure on gas prices for consumers.

“Supply shortfalls will only drive up energy prices for all Australians,” APPEA chief executive Samantha McCulloch said.

“The draft Code moves away from a ‘cost plus’ model and binding arbitration, but the revised approach still adds significant complexity and Ministerial discretion to the operation of the gas market and is unlikely to address the concerns from investors.”

Government says it will be ok

However, the government is boasting that following close engagement with gas users and producers that supply will not be an issue.

The backers of the new code claim it has already been offered indicative domestic supply commitments under the new framework of at least 260 petajoules to 2027.

The government says those indicative commitments would reduce the risk of shortfalls as assessed by the Australian Competition and Consumer Commission (ACCC) and the Australian Energy Market Operator (AEMO).

Reasonable prices a target

According to the government, the new Gas Code will ensure Australian gas is available for Australian users at reasonable prices, give producers the certainty they need to invest in supply, and ensure LNG producers meet their export commitments.

Most notably, the government is trumpeting its success in securing additional domestic supply commitments in the short term to anchor prices at $12 per gigajoule (GJ) and “shield east coast gas consumers from volatile international gas prices.”

According to the latest Australian Energy Regulator (AER) data Victoria’s 2022/23 gas price averaged out at $17.84/GJ, Adelaide $19.54/GJ, Brisbane $18.59/GJ, Sydney $18.99/GJ and South East Queensland $12.78/GJ.

Smaller player rules

While much of industry has expressed consistent concerns over the Gas Code, some smaller producers have welcomed news that they will be exempt from the price cap if they supply only the domestic market.

APPEA has said that while automatic exemptions from price controls are proposed for small domestic-only producers, in most cases meaningful supply investments will require further conditional exemptions.

“The test for the Code will ultimately be whether it can support investment in critically-needed new gas supply.”