‘No more excuses’: Energy crackdown turns up heat over gas shortage

Decisions on whether to proceed with two east coast gas supply projects – Cooper Energy’s offshore Otway Basin project known as OP3D, and Senex’s $1 billion Atlas project in Queensland – were put on hold pending the terms of the code of conduct.

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Senex, whose biggest shareholder is Korean steel producer Posco, on Monday said it would take the necessary time to review the final wording of the code of conduct, and hoped it would establish “workable rules” enabling the company to bring on much-needed new gas supply to the east coast market. “In this particular case, the detail really does matter,” a company spokesperson said.

Senex said it recognised that manufacturers faced challenges securing new gas deals, and Atlas could be “part of the solution” to bring on new supplies and help lower prices.

The new code, which comes into force on Tuesday, will extend a $12-a-gigajoule price limit on domestic gas sales to act as a “price anchor” until at least mid-2025, while providing exemptions for smaller producers who sell all their gas domestically rather than export it overseas as liquefied natural gas (LNG).

LNG producers, such as Santos, Shell and Origin Energy, 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 joint statement, Treasurer Jim Chalmers, Energy Minister Chris Bowen, Resources Minister Madeleine King and Industry Minister Ed Husic said the code would ensure Australian gas was available for Australian users at reasonable prices, give producers the certainty they need to invest in supply and help to ensure Australia remained a reliable trading partner.

The government also reaffirmed that it had backed down on its most controversial proposal, to include a “reasonable” pricing mechanism. 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 risks involved in oil and gas projects, such as unsuccessful exploration activity, development costs and decommissioning requirements. It warned the mechanism would have deterred investment in new sources of supply needed to ease the threat of east coast shortfalls, and kept a lid on prices for years.

The government said gas producers had already made supply offers of at least 260 petajoules – the equivalent of about 40 per cent of typical east coast annual demand – out to 2027. “These indicative commitments will reduce the risk of shortfalls as assessed by the ACCC and [the] AEMO [Australian Energy Market Operator],” the ministers’ statement said.

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