Transcript: Doorstop interview with APPEA Chief Executive Samantha McCulloch on gas market pricing

Transcript: APPEA Chief Executive Samantha McCulloch discusses gas market pricing  

12 December 2022 

Doorstop

Samantha McCulloch: The reforms announced by the government on Friday evening fundamentally dismantle the efficient operation of Australia’s gas industry. It goes well beyond a temporary price cap and includes indefinite regulation into the prices in the Australian gas market. 

This is going to have a chilling effect on future investment in supply, and it’s that new investment in supply that is actually the key to bringing down prices for Australian households and Australian manufacturing. 

Reporter: In the mandatory Code of Conduct, the framework released by Treasury, it says reasonable price, are you seriously suggesting you want to impose an unreasonable price gas? 

McCulloch: Well, it’s a regulated price concept that will be administered by the ACCC. It doesn’t reflect the risk profile of the industry. This is an industry that spends billions of dollars before any money is made, so a regulated price is not going to be conducive to new investment in supply. 

Reporter: Are you speaking to the Crossbench and Coalition about your concern with this legislation and asking them not to support it, and so on? 

McCulloch: We’re speaking to all stakeholders. This is far-reaching reform that will have long-term consequences for Australia’s energy security, and for our gas industry and the 80,000 jobs and workers that are employed the gas industry. 

These are considerable reforms that really need adequate consultation, with stakeholders including the gas industry. 

Reporter: Can you confirm you’re planning a $20 million campaign against these reforms, and if you are don’t you think that could be seen as out of touch, given how many people are struggling right now? 

McCulloch: All options are on the table, this is an industry which has invested $400 billion in the Australian economy over the last decade and what we’re seeing now is a government changing the rules of the game with alarming frequency. So, as an industry we’ll be looking at all options in regards to these reforms. 

Reporter: Inaudible. 

McCulloch: Let’s break that down actually, the price of gas, let’s distinguish between the domestic market and the export market. Domestically, and when we’re looking at the wholesale market, where the caps are going to be applied, most gas is sold under long-term contracts and the average price being struck in those long-term contracts is around $12 a gigajoule.  

What we have seen is agreements between the Australian government and the east coast LNG exporters, struck in September, that guarantees supply into the Australian market, that guarantees supply at competitive rates, yet the government hasn’t given these mechanisms a chance to work. Within three weeks of the Heads of Agreement (HoA) being struck, the government was calling for further intervention.  

What we need now is not more intervention, not more regulation, we need more supply to increase gas to the market and bring those prices down. 

Reporter: Isn’t it the case the HoA was admitted straight afterwards by the government that it wouldn’t do anything to lower gas prices, which was the problem with it, and the manufacturers and people like Innes Willox and the AWU who leaped up and down and said we need more to keep gas prices where they are? 

McCulloch: The Heads of Agreement enshrines a principle that domestic customers will always pay less than international customers. It offers more than 157pj of uncontacted gas to the domestic market and we’re seeing evidence that the Heads of Agreement was working.  

There have been several gas supply agreements struck just in recent weeks, including an 11-year supply deal between Santos and Brickworks, that was struck at rates which were competitive and that both parties were comfortable with. This is how the market is working. 

Reporter: The government has been talking about strengthening the Code of Conduct for months, did you think they were bluffing? I’m wondering why you so surprise about what you saw on Friday given they were talking about going down this route and giving the ADGSM some actual teeth. Why were you so surprised? 

McCulloch: Friday’s reforms were beyond what most in the industry and most in the community were expecting because it included not just the temporary, one year price cap, that could still be extended, but ongoing regulation of gas prices in the code.  

Now this started as a voluntary code that was negotiated between gas producers and gas suppliers and the Australian government over almost a two-year period, negotiated in good faith.  

It provides for transparency around how gas is offered to market and provides for a dispute resolution process, but it wasn’t given a chance to work, within three weeks of the Code of Conduct coming into play the government was calling for more intervention, and now the mandatory code will include these regulated price provisions. 

Reporter: Why, given the fact that the vast majority of Australian gas is sold overseas, would a price cap on the local market deter investment? Wouldn’t that have a small effect, if any? 

McCulloch: Well what we need to do is be bringing on more supply where it’s used in Australia. When we look at the east coast market, which is the subject of most of the reform, 80% is produced in Queensland but the key demand centres are actually in New South Wales and Victoria, and what we are seeing is the supply in those states is either prohibited through moratoriums, bans and delays, or it’s declining. 

So, what we need to do is see more investment in those eastern and southern states to meet demand. 

Reporter: Have you spoken with the PM yet or do you plan to? 

McCulloch: We’ve requested a meeting between APPEA Board members and the Prime Minister this week. I think it’s important that the Prime Minister meet with the industry to understand the long-term consequences for investment if these reforms… 

Reporter: Is there any indication that that meeting is going to happen? Have you heard anything from the PM’s office? 

McCulloch: We’re liaising with the Prime Minister’s office currently. 

Reporter: Can you give me a specific example of investments that might not go ahead because of this? 

McCulloch: I would have to leave it to my members to make comments on individual projects and the impacts of these reforms on individual projects? 

Reporter: Will this new regulation stop the industry selling more of its gas overseas? 

McCulloch: Look, the Prime Minister has assured that the long-term LNG contracts would not be interrupted; what would be of a concern here is among the package announced on Friday night – but also included in the budget – was a quarterly review of the ADGSM, which is the Australian Domestic Gas Security Mechanism. 

This means that every quarter the government will be looking at whether or not it wants to interrupt those contracts with our major trading partners. 

Reporter: Ben’s question a moment ago was about new projects that might not go ahead and you don’t want to talk about individual companies obviously – that’s for them to discuss – but does APPEA as an organisation have a forecast of how much new gas is meant to be developed over the next 5-10 years across the sector, and whether the Friday deal changes that outlook at all? 

McCulloch: We’ve only had this information now for a few days but what I can say is that analysis we released the week before last by EnergyQuest really highlighted the impact of intervention such as price caps on future investment and on the economic viability of projects going forward – and that includes energy storage facilities in Victoria that are key to balancing peak demand during winter periods. 

It also includes the viability of LNG import terminals. We know that these import terminals are going to play an important role in terms of energy security on the east coast of Australia in the next decade.