The Albanese government will extend its price cap on wholesale gas prices until at least mid-2025 in an attempt to limit soaring energy costs.
It will also offer exemptions for producers in the domestic market if they can deliver enforceable promises to maintain a certain level of supply.
The price limit extension is part of the final consultation planned for a mandatory code of conduct for the gas industry, released on Monday.
“The gas code will ensure sufficient supply of Australian gas for Australian users at reasonable prices, give producers the certainty they need to invest in supply, and ensure Australia remains a reliable trading partner by allowing LNG producers to meet their export commitments,” the energy minister, Chris Bowen, the resources minister, Madeleine King, and the industry minister, Ed Husic, said in a joint statement.
“Coupled with action to cap coal costs for power generators, gas price caps under the Government’s Energy Price Relief Plan nearly halved wholesale energy prices.”
The gas industry had objected strongly to the government’s intervention last December when it imposed a $12 per gigajoule price cap for domestic sales. It also set a separate $125/tonne limit on black coal for Queensland and New South Wales, with both caps intended to work to curb the run-up in electricity prices.
The size of the effect of the price caps on power prices is contested. While wholesale prices have been lower since December, they typically account for only about a third of users’ bills and those costs are still set to rise as much as a third from July.
The government also indicated it was prepared to grant gas companies exemptions under certain conditions – with details of the code to be finalised before the end of June. The $12/GJ gas prices will be assessed by a review to start by 1 July 2025, implying the cap may extend beyond that time.
In the meantime it will allow companies that satisfy the Australian Competition and Consumer Commission with “court-enforceable supply commitments” to become exempt from the cap.
Small producers that direct their supply only to the domestic market will also dodge the cap.
The mix of carrots and sticks include giving the ACCC “a strong enforcement regime” for the new gas code. The measures, once introduced, will be reviewed within two years.
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Companies and other stakeholders have until 12 May to make submissions. One area of uncertainty will be how the government determines and imposes its “reasonable” price test on new gas projects.
Guardian Australia sought details from the government about the planned price cap for black coal.
Industry has provided a mixed response. Andrew Richards, the chief executive of the Energy Users’ Association of Australia, called the policy a “welcome step in the right direction” but said more work needed to be done for big energy consumers.
“There is still much to do to finalise the code and, importantly, detailed design of the regulations will be critical to ensuring the intent of the code is able to be delivered,” Richards said. “We look forward to working constructively with the ACCC, government and the gas producers as they finalise this critical code.”
The association said many of its members continued to struggle to sign gas contracts this year even with the price caps in place.
The Australian Pipelines and Gas Association said the government’s proposed mandatory code would “help rebalance the domestic gas market, but concerns remain that it will not do enough to alleviate underlying supply issues”.
“Gas-fired generation will be vitally important to ensure the ongoing security of the national electricity market as coal-fired generation exits and more intermittent renewables come online,” Steve Davies, the group’s CEO, said.
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