Gas producers warn Australian supply at risk under price cap plan

SYDNEY/MELBOURNE  – Australia’s biggest natural gas producers on Tuesday warned that the government was putting supply at risk, escalating an outcry after the government landed a surprise proposal to control prices beyond a one-year cap.

In the first move that could hit supply, global major Shell paused accepting bids for gas under a plan to boost supply for Australia’s populous east coast in 2023 and 2024 while it assesses the government’s proposal.

The government on Friday announced a 12-month cap on gas and coal prices to keep a lid on bills for households and businesses hit by soaring global energy prices following Russia’s invasion of Ukraine.

But producers are more concerned about the government’s proposed long-term “reasonable pricing” regime that would set gas prices at the cost of production plus an agreed profit margin after the one-year price cap expires.

Top independent gas producer Woodside Energy Group said Labor’s plan would deter investment in new supply, rather than meeting the government’s goals of beefing up energy security, lowering energy bills and boosting renewable power.

“Unfortunately, the proposed market intervention will make it very difficult for industry to economically invest to increase supply,” Woodside Chief Executive Officer Meg O’Neill said in a statement on Tuesday.

“No one wants to see energy shortages and gas rationing,” she said.

Shell said the government’s proposal might undermine the terms of an agreement that three east coast liquefied natural gas (LNG) exporters – Australia Pacific LNG, run by ConocoPhillips, Gladstone LNG, run by Santos Ltd and Queensland Curtis LNG, run by Shell – reached with the government in September to prevent a forecast supply crunch.

Under that deal, Shell’s QGC arm had offered gas for 2023 and 2024 for domestic customers through an expression of interest (EOI), but on Tuesday said it was pausing the process.

“QGC needs to consider whether the design of the current EOI will meet the new regulatory requirements,” Shell said.

Energy Minister Chris Bowen shrugged off Shell’s move, saying the global major was just protecting its own interests.

“Our job is to protect Australian people, but the CEO of Shell can try and protect its profits. We will be protecting the Australian people,” Bowen said at a media conference in Sydney.

An Australia Pacific LNG spokesperson said APLNG would continue to honor its commitments under the agreement, “which we recognize plays an important role in giving confidence around the security of gas supply to the market.”

Parliament will hold a special session on Thursday to vote on the plan to cap uncontracted gas prices at A$12 ($8.09) per gigajoule (GJ) and coal prices for power producers at A$125 per tonne for one year.

($1 = 1.4830 Australian dollars)