Gas companies are locked in high-stakes talks with the Albanese government, which is demanding they commit to fill a shortfall forecast for next year to stave off the threat of soaring power bills.
Resources Minister Madeleine King said in July she was negotiating a new agreement with LNG exporters to guarantee local gas supply with three Queensland producers – Origin Energy-backed APLNG, Shell’s QCLNG joint venture and Santos’ GLNG.
Resources Minister Madeleine King.Credit:James Brickwood
The LNG companies inked a non-binding agreement with the former Coalition government guaranteeing to plug any holes that emerge in the local market. If they do not fulfil their promise, the government could trigger export controls.
The Australian Competition and Consumer Commission has forecast a shortage of 56 petajoules in 2023, equivalent to 10 per cent of domestic demand. Meanwhile, LNG producers are reaping record profits while prices soar.
The agreement expires on January 1 next year and the Albanese government is worried a shortfall could raise already high gas prices.
The export parity prices, known as the netback price, has hit $67 a gigajoule after being driven up by a global energy crunch caused by a ban on Russian exports.
Industry Minister Ed Husic has argued gas supply shortfalls and high prices create geopolitical risks for Australia, following the weaknesses in local manufacturing and supply chains exposed at the start of the COVID pandemic.
Heavy gas users, including essential industries such as food manufacturing, fertiliser and brick making, are among those most affected by any high prices and supply shortfalls.
“I will back local manufacturers over multinational greed every day of the week,” Husic told this masthead.
Sources with knowledge of the discussions say Husic has told LNG companies the Albanese government would not accept losses of manufacturing businesses.
The Australian Financial Review reported on Monday that Resources Minister Madeleine King had proposed a scheme to cap gas prices for domestic buyers instead of imposing export controls but the LNG companies have rejected the offer.
“The Albanese Government is committed to ensuring affordable, reliable and secure energy for Australian households and businesses,” a spokesman for King said. “The Minister will have more to say on this matter soon.”
Australian Petroleum Production and Exploration Association chief executive Samantha McCulloch said the industry was “committed to ensuring adequate and reliable supply of gas to the domestic market” and new price or export controls would create “uncertainty among overseas trade partners and investors”.
Opposition resources spokesman Senator Susan MacDonald said the government should help fund the industry to open new gas fields instead of threatening penalties.
“Minister King knows the answer is bringing online more gas supply but she has her hands tied behind her back and is not supported by her Cabinet colleagues,” MacDonald said.
Grattan Institute climate and energy director Tony Wood said the government had very few options but to slug LNG producers, given the high prices would force manufacturing business to close and drive up household power bills.
“I don’t think they have any choice… businesses cannot sustain these prices”, he said. “Retail prices haven’t flowed through yet, because existing contracts are in place but eventually that will happen.”
Australian Industry Group, which represents gas-dependent manufacturers said companies seeking new supply contracts have been confronted with prices double their previous cost.
“Government action is needed, but not just anything will do,” said Ai Group policy advisor Tennant Reed. He wants new measures to keep a lid on prices and boost supply, as well as funding to help companies switch from gas to electricity created by renewables.
Greens leader Adam Bandt is pressuring the government to ditch their support for new fossil fuel projects and urged it to slap a new tax on the LNG profits.
“Instead of tinkering around the edges, Labor should put a windfall tax on the gas industry’s obscene profits, then use that money to help households and businesses get off expensive gas,” Bandt said.
The Energy Users’ Association of Australia, which represents large industrial energy users, urged the government to force LNG producers to guarantee cheaper gas for the domestic market.
“Without competitively priced gas for manufacturing these locally made products become more expensive and risk being replaced by imports,” said the association’s chief executive, Andrew Richards.
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