Hopes rise for energy price reforms as gas giants and government talk

Woodside is also in talks with Resources Minister Madeleine King over proposed changes to the Australian Domestic Gas Security Mechanism, a policy that enables the government to redirect gas exports to the local market to head off shortfalls. “We are also engaging constructively with Minister King and her department, and we believe the majority of proposed changes to the mechanism will make it a more effective tool of last resort,” Abbotsford will say.

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East-coast gas users, such as manufacturers that use gas for energy or as a raw material in their factories’ processes, have strongly supported the government’s efforts to bring down what they say are “unreasonably and unsustainably” high prices that have risen disproportionately to exploration and production expenses.

Before the government decided to intervene in the market, east-coast gas bills had been forecast to surge by more than 40 per cent by 2024, largely due to the fallout from the war in Ukraine worsening a global energy crunch and boosting prices.

However, gas producers responded angrily to the government’s proposal to set “reasonable” pricing controls, which would reflect cost of production plus an appropriate return on capital. The industry has argued that the draft proposal ignores the significant and unique risks involved in oil and gas projects, such as unsuccessful exploration activity, development costs, power costs and extensive decommissioning requirements.

Woodside, which supplies about 20 per cent of east-coast gas demand through its stake in the 50-year-old Bass Strait oil and gas fields, earlier this year said the proposed price controls may force it to reassess its long-term investment plans in the venture that it jointly owns with US energy giant ExxonMobil.

The offshore gas fields have traditionally been Australia’s biggest source of domestic gas but are rapidly declining, prompting the AEMO to issue warnings that Victoria could face gas shortfalls this winter if a burst of cold weather drives up heating usage at the same time as a slump in output from wind farms or breakdowns at coal-fired power plants.

By 2027, states including Victoria, NSW and South Australia would face yearly gas supply deficits unless new gas supplies were made available, AEMO said.

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