Australian LNG producers have to start supplying businesses and households with gas at a fair price under the new Gas Market Code rules made by the ALP government.
Unions, economists, manufacturers and domestic users of gas warned of the dangers of linking domestic gas prices to international prices, as the export gas industry opened up in the 2010s.
With multinational gas exporters prioritising maximising profits from the export market, Australia was exposed to punishingly high domestic prices and potential gas supply shortfalls which have plagued Australia ever since.
Competition and Consumer (Gas Market Code) Regulations 2023
The Gas Code includes the rules on exemptions to the wholesale price cap of AUD. $12 a gigajoule (USD $7.98) for small domestic-only producers, and sets new conditions around how gas is offered and sold in the eastern states.
The Energy Users’ Association of Australia, which represents large industrial companies such as Brickworks and BlueScope Steel, welcomed the new law, saying:
“Our expectation is that the Code will make it easier to contract gas in Australia at reasonable prices and with reasonable contract terms.”
Energy Users Association of Australia
The Code will ensure domestic prices are reasonable by establishing a price anchor, or mechanism to drag prices down, through the combination of:
1. A price cap, which is to be set at $12/GJ and subject to a review commencing by 1 July 2025;
2. A process for qualifying for exemptions from the price cap on the basis of making satisfactory ACCC and court enforceable supply commitments; and
3. Allowing small producers of gas to be exempt from the price cap if they supply only the domestic market.
If gas is not offered at a “decent” price, then the producer would lose their exemption from the price cap. Gas producers on the east coast were expected to immediately start applying for exemptions to the wholesale price cap.
The code includes the rules on exemptions to the wholesale price cap of $12 a gigajoule for small domestic-only producers, and sets new conditions around how gas is offered and sold in the eastern states.
The Energy Users Association of Australia had a message to gas producers:
“You’ve now got the code, it’s actually not as harsh as you thought it would be, you’ve got some concessions in there … so get out and do your job and do the right thing”
“If you don’t you’re just inviting further intervention by regulators.”
Andrew Richards, chief executive of the Energy Users Association of Australia
The Australian Competition and Consumer Commission (ACCC) enforces the Gas Code regulations, with a review to be undertaken no later than two years after coming into effect on 10 July 2023, to ensure the Gas Code remains effective and fit for purpose.
The ACCC prepared guidelines that set out their position on the investigation and enforcement of possible contraventions of the Competition and Consumer (Gas Market Code) Regulations 2023.
The Australian Workers’ Union welcomed the involvement of the ACCC.
“We have to hold the major gas producers accountable for the vital role they are privileged to hold within Australia’s economy with which they’ve been entrusted”
“We call on the ACCC to be vigilant on imposing harsher regulatory measures should any corporation fail to comply.”
AWU National Secretary Paul Farrow.
The government issued a joint statement by the Treasurer, Minister for Climate Change and Energy, and the Minister for Resources, saying:
“This will secure more gas at more reasonable prices for Australian gas users.”
“The Gas Code will ensure Australian gas is available for Australian users at reasonable prices, give producers the certainty they need to invest in supply, and help to ensure Australia remains a reliable trading partner.”
Joint statement by the Treasurer, Minister for Climate Change and Energy, and the Minister for Resources.
Coupled with action to cap coal costs for power generators, the Government’s actions nearly halved wholesale energy prices, the joint statement said.
The Mandatory Gas Code of Conduct commenced on 11 July 2023. There will be a 2-month transitional period to allow companies to adapt to new conduct provisions, record keeping and reporting obligations.
Producers have already offered indicative domestic supply commitments of at least 260 PJ to 2027. These indicative commitments reduce the risk of shortfalls as assessed by the ACCC and AEMO.
The final Code follows extensive consultation with gas producers and users to ensure it is fit for purpose.
“The ball is in the gas industry’s court now: they can choose to do the right thing, or invite the further wrath of the regulator”
Andrew Richards, chief executive of the Energy Users Association of Australia
The Australian Workers’ Union, who have campaigned for a gas reservation policy under the banner ‘Reserve Our Gas’ opposed by the gas industry, celebrated a long overdue victory with the introduction of the mandatory gas code of conduct.
“Today, we celebrate a federal government that has taken meaningful action to fix a broken market.”
“Gas producers will now have to make binding commitments to provide reasonable prices and quantities of gas to the domestic market, under the threat of a hard price cap of $12 per gigajoule.”
“Essentially, a domestic gas reservation scheme has been achieved and this will save thousands of Australian jobs and benefit millions of Australian households.”
“It’s crucial that this code of conduct, unlike its predecessors, is mandatory and not voluntary. However strong oversight and enforcement will be necessary.”
AWU National Secretary Paul Farrow.
The Australian Council of Social Services (ACOSS) welcomed the gas market code and urged government to take further steps to make energy affordable as an essential service for people on low and modest incomes.
ACOSS CEO Cassandra Goldie said:
“International gas corporations are making enormous profits from public resources while soaring energy bills are forcing people on lower incomes to choose between heating their homes and eating three meals a day.”
“The gas code will increase the necessary regulation of these companies and the $12/GJ price cap should help put downward pressure on household gas prices.”
ACOSS CEO Cassandra Goldie
ACOSS went further and suggested the government establish a domestic gas reserve to guarantee domestic supply rather than rely on exemptions to the cap to guarantee domestic supply.
ACOSS also urged government to impose a 10 percent royalty on offshore gas production to fund a transition away from gas, and work with energy retailers to provide energy debt relief to people in energy hardship.
The Gas Code rules put “government at the centre of the gas market” and make it responsible for any future shortfalls, the Australia Petroleum Production & Exploration Association (APPEA) said in a statement.
“Investment in new gas supply is now urgently needed to avoid shortages”
“The government has taken the reins of the east coast gas market and with this comes the responsibility for ensuring sufficient supply and investment certainty.”
APPEA CEO Samantha McCulloch said.
The 60-page explanatory statement on the mandatory code of conduct outlined in the Competition and Consumer (Gas Market Code) Regulations 2023 is available online.
The joint media statement made by The Hon Jim Chalmers MP, Treasurer; The Hon Chris Bowen MP, Minister for Climate Change and Energy; and The Hon Madeleine King MP, Minister for Resources, Minister for Northern Australia is also online.
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