“The Mandatory Gas Code of Conduct now under consultation is much simpler than previously foreshadowed, has the outlines of a sensible exit strategy for price intervention and is more likely to stabilise both price and supply,” Innes Willox, Chief Executive of national employer association Ai Group, said today.
“Getting the final version into place is urgent,” Mr Willox said.
“Last year’s global and local energy shocks are still slamming industry and households and demanded a policy response. However, the cure must not be worse than the disease. Government interventions have been highly effective in bringing wholesale electricity prices back to more bearable levels. By contrast, gas contracting has been largely frozen while buyers and sellers awaited the Reasonable Price Provision (RPP) of the Mandatory Code.
“Simplicity has been badly needed.
“As originally described, the RPP looked complex and intensely contested. Gas supply and demand are finely balanced for now and increasingly out of step from 2027. Clear rules need to be in place as soon as possible so that gas buyers and sellers can get on with business and ensure demand is met.
“Compared to the RPP, there have been relatively muted objections to the emergency $12 per gigajoule gas price cap that expires in December. The Government is therefore sensible to adapt that cap into a price ‘anchor’ that it proposes would apply for the next two years. Administration directly by the ACCC, using the same approach it took to the emergency price cap, should help all parties adapt to the new system. Exempting small producers and enforceably committed supply by larger producers should ensure prices are anchored without compromising supply adequacy.
“Extraordinary measures should lift as the emergency recedes.
“The war in Ukraine has rocked global energy markets and driven much of Australia’s 2022 energy price spike. Europe is now managing without Russian gas much more easily than many feared. While we may see further international price surges, particularly as Chinese demand recovers, it seems plausible that global gas markets will rebalance over the next few years.
“Ai Group has been clear that emergency interventions required an exit strategy. Today’s draft sketches one, but more specificity will be needed. Reviewing the need for the price anchor in 2025, or sooner if circumstances warrant, is sensible. The Government should articulate criteria for this assessment around the return of global gas markets to balance and confidence that local markets will reflect that normalisation.
“When workable competition is achieved, preserving the RPP framework while suspending its operation would make any future energy emergency responses more predictable and orderly. Growing geopolitical tensions underline that Australia should be ready for anything.
“Beyond pricing, the Mandatory Code enforces minimum standards of behaviour in the gas market. That role is appropriately permanent.
“Two weeks of consultation is short, but it is genuinely urgent to provide a clear basis for gas contracting to resume, particularly for 2024 and beyond. Ai Group and our members will do our part to help refine and finalise this reform with all due speed.
“An effective strategy to avoid gas shortfalls and to make a successful transition will take much more than the Code. Sustaining affordable gas supply as long as it is needed, replacing it as fast as practical with renewable gases and electrification and greatly lifting energy efficiency will all have roles,” Mr Willox said.
