• Natural Gas News

    Appea says gas price cap uncertainty persists

Summary

Last month, the Australian government’s Gas Market Emergency Price Order introduced a temporary price cap of A$12/gigajoule (GJ) that principally applies to gas sold by east coast and Northern Territory.

by: Shardul Sharma

Posted in:

Complimentary, Natural Gas & LNG News, Asia/Oceania, Liquefied Natural Gas (LNG), Security of Supply, Corporate, Political, News By Country, Australia

Appea says gas price cap uncertainty persists

Australia’s peak oil and gas body Appea on January 19 welcomed the release of interim guidelines for the implementation and enforcement of price cap legislation by the Australian competition watchdog but said that these guidelines do little to resolve the uncertainties in the market.

Last month, the Australian government’s Gas Market Emergency Price Order introduced a temporary price cap of A$12/gigajoule (GJ) that principally applies to gas sold by east coast and Northern Territory gas producers and their affiliates to wholesale customers in Australia. The price cap will apply for 12 months. 

Appea said it had been waiting for a range of issues to be clarified since mid-December. “However, the interim guidelines do little to resolve the short and long-term uncertainties in the market,” it said.

Appea CEO Samantha McCulloch said the interim nature of the guidelines released reflected the complexity of implementing this policy and underscored its rushed nature.

“The interim guidelines re-enforce the disconnect between the policy and the operations of the Australian gas market in practice,” she said. “It is clear that the new rules will make it extremely challenging for producers to continue to provide the flexibility of gas supply required by customers.”

According to Australian Competition and Consumer Commission (ACCC) interim guidelines, the maximum penalty for a company that breaches the emergency price order is the greater of A$50mn or three times the value of the benefit obtained, or, if that value cannot be determined, 30% of the company’s turnover during the period it engaged in the conduct.

The price cap generally does not apply to supply contracts entered into before December 23, 2022 but may apply if a price provision in an agreement for supply in 2023 is varied. The price cap does not apply to sales of gas intended for international export.

Appea said that the interim guidelines also leave much of the interpretation of the rules to the discretion of the ACCC, on a case-by-case basis. It said the industry was committed to continuing to meet the needs of customers while adhering to the new laws.

“With up to A$50mn penalties, it is entirely reasonable for the industry to require certainty of the rules under which it is being asked to operate. But the government is still writing the rule book,” she said. “To date, the government’s interventions have created uncertainty and confusion in the gas market, while delivering little or no benefit to consumers.”

McCulloch said that the government has acknowledged that over 90% of the gas supply is already contracted for 2023.

“We all need a gas market that can function. The industry will continue to engage with the ACCC and the Government to try and find a workable path out of the uncertainty that currently prevails,” she said.

“As the Code of Conduct process advances, we hope that lessons will be learned from the price cap experience, where poorly conceived interventions are creating uncertainties and in turn damaging and immediate impacts on the functioning of the market to the detriment of consumers,” McCulloch said.