08 Feb 2023

Media Release: Proposed mandatory code needs rethink to reduce gas prices and avoid shortfalls

Australia’s oil and gas industry has called for a change in direction to the proposed mandatory Code of Conduct to allow investment in new supply to avoid shortfalls and put downward pressure on prices.

The Australian Petroleum Production & Exploration Association (APPEA) today releases its submission to the Consultation Paper, Options to ensure the domestic wholesale gas market delivers for Australians.

In its submission, APPEA notes the critical time for the sector after the Australian Competition & Consumer Commission (ACCC) last month warned of gas shortfalls from 2027 and recommended new supply to avoid upward pressure on domestic gas and electricity prices.

In contrast, APPEA highlights that the proposed approach to a mandatory Code of Conduct risks doing the opposite – undermining the case for new investment and creating a supply crunch.

APPEA Chief Executive Samantha McCulloch said: “These are the worst possible reforms at the worst possible time for Australia’s cleaner energy future.

“These interventions will reduce investment and ultimately increase the risk of gas shortages and further price increases – the opposite of what the ACCC say is needed.

“As with the introduction of the temporary price cap – when markets froze and investment was spooked – the proposed mandatory Code risks causing maximum disruption with minimal benefit to Australians.”

APPEA has recommended three measures to guide reforms to put downward pressure on prices and avoid supply shortfalls.

First, APPEA argues that the principles and processes agreed in the voluntary Code endorsed by the government last September should form the basis of any mandatory Code given it was never given a chance to work and was effectively torn up 27 days later.

Ms McCulloch said: “The voluntary Code – agreed to after two years of good faith consultation involving industry, customers and government, and backed by the ACCC – addresses the key principles and inclusions of the proposed mandatory Code in a workable way.”

The industry has also recommended that the market be allowed to work given the unintended consequences of permanent price controls.

“Permanently regulating prices can’t factor in the complexities of the market and will only slash competition, distort the market and risk energy security,” Ms McCulloch said.

“This measure would see the government set the price at what they consider ‘reasonable’, with the option to change the rules at any time.

Finally, APPEA recommends a flexible arbitration process where buyers and sellers decide how to do business instead of the proposed binding framework locking parties in before the fact.

Ms McCulloch added: “Sellers and buyers will not make billion-dollar decisions when the economics of their investment may be derailed by the outcome of a future arbitration process that is outside their control and can dictate when, where and how much gas is supplied, and at what price.”

She said the sector understood the challenges faced by businesses and consumers due to energy system pressures and was committed to delivering competitively-priced gas.

She pointed to recent economic studies that had found intervention and price controls would drive up prices in the long-term after investment in new supply diminished.

ACIL Allen found wholesale gas prices could rise by 40% while households could face rises of up to $175 annually because investment in new supply reduced,” she said.

“APPEA and its members remain committed to working with government to find an effective, workable, and sustainable way forward that ensures sufficient supply and puts downward pressure on prices.”

The Australian Gas Industry Code of Conduct

The Australian Gas Industry Code of Conduct, announced in September, aimed to deliver better outcomes in the Australian domestic gas market, providing for improved transparency and greater supply certainty. This voluntary code provides minimum standards of business conduct for suppliers to build and sustain trust and cooperation while providing an effective, fair and equitable dispute resolution process for customers to raise complaints about compliance. The Code reflects extensive consultation and agreement between gas users and gas suppliers, commencing in late 2020 and continuing through 2021. It was released as part of the Heads of Agreement (HOA) in September and can be viewed from Annex C on page 7 here.

Attachment: APPEA Mandatory Code of Conduct Consultation Submission.

To view the media release as a PDF, please click here.