Gas producers eligible for exemptions from longer-term price curbs

Unprecedented caps on Australia’s domestic gas prices could be extended until at least 2025 under the federal government’s proposed code of conduct for the industry, but producers will be eligible for exemptions if they strike agreements to boost supplies into the east coast market.

Following a surge in global energy prices due to Russia’s invasion of Ukraine last year, the Albanese government introduced emergency laws in December to cap the domestic gas price at $12 a gigajoule for 12 months in a bid to shield homes and businesses from the biggest possible future bill hikes.

However, the government on Wednesday released the details of a new plan for consultation that would keep the temporary price restriction in place for longer to act as a “price anchor” before being reviewed in July 2025.

Under the proposal, smaller gas producers that supply the domestic market only and do not ship the fuel overseas as liquefied natural gas (LNG) will be exempt from the price cap.

LNG companies will be eligible for exemptions if they make a “satisfactory”, court-enforceable commitment to boost supplies into the domestic market, the government said.

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In a sign of compromise following weeks of drawn-out talks between the government and the gas industry, the draft code no longer contains a “reasonable” pricing mechanism – a controversial proposal that would have required gas contracts to be struck at prices that reflect production costs plus a margin allowing for a specified rate of return.

The industry had argued a reasonable pricing mechanism would have ignored the significant and unique risks involved in oil and gas projects, such as unsuccessful exploration activity, development costs, power costs and extensive decommissioning requirements, and warned it would have deterred investment in new sources of supply needed to ease the threat of east coast shortfalls and keep a lid on prices in years to come.

In a joint statement on Wednesday, Treasurer Jim Chalmers, Energy Minister Chris Bowen, Resources Minister Madeleine King and Industry Minister Ed Husic said the government would consult the industry on its updates to the proposed mandatory code of conduct until May 12.