Australia's Parliament approves gas price cap, $1.4b energy relief

MELBOURNE - Australia’s Parliament on Thursday passed legislation setting a price cap on natural gas for one year and providing A$1.5 billion (S$1.4 billion) in relief for households and small businesses hit by soaring energy costs due to Russia’s war in Ukraine.

The government won support from the Greens party to pass the legislation, which met with fierce opposition from the gas industry but was supported by manufacturers and the Australian Workers’ Union, after agreeing to provide funding in its next budget to help low-income households switch from gas to electricity.

The price cap will apply to new wholesale gas sales by east coast producers. At A$12 per gigajoule (GJ), it is less than half the average short-term price of A$26 per GJ in the third quarter, according to data from research group EnergyQuest.

The law also clears the way for the government to regulate gas sales when producers and buyers fail to agree on a contract price. That provision had been strongly criticised by suppliers into Australia’s east coast market, including global majors ExxonMobil and Shell.

“This is a very modest package of a modest intervention that’s required because of the extraordinary circumstances,” Prime Minister Anthony Albanese told Sky News.

Details of the new pricing regime, to be based on production costs plus a “reasonable” rate of return, are due to be worked out by February.

Gas producers and analysts have warned that the new law will lead to market chaos, with producers already withholding offers of supply while they assess its impact.

“This Soviet-style policy is a form of nationalisation,” said Mr Kevin Gallagher, chief executive of Australia’s No. 2 independent gas producer Santos.

“Because of its actions today, this winter or the one after, the federal government will have to decide between rationing gas and breaking LNG export contracts,” Mr Gallagher said in an e-mail on Thursday.

The Australian Workers’ Union, which represents manufacturing workers and had pushed for the legislation, lauded the new law and said gas exporters were exaggerating the negative consequences.

“The Albanese Government and the crossbenchers are to be commended for seeing through the hyperbolic nonsense of the exporters and legislating in the national interest,” Mr Daniel Walton, the union’s national secretary, said in a statement after the Bill passed.

Mining billionaire Andrew Forrest’s private firm Squadron Energy, which is building a liquefied natural gas (LNG) import terminal, urged the government to require Queensland gas producers to make LNG available for the domestic market at “reasonable prices”.

“This means that reasonably priced LNG can be shipped directly from Queensland into the East Coast Gas Network for consumers and business to buy,” Squadron CEO Eva Hanly said in a statement.

Along with capping gas prices, the government last week lined up the states of New South Wales and Queensland to cap the price of coal sold to power plants at A$125 per tonne. REUTERS