PERTH (miningweekly.com) – Gas producer Senex Energy has called on the federal government to re-think intervention plans, warning that it could drive away investment in the Australian gas sector and could risk electricity shortages.

In a submission to the government’s Gas Market Consultation, Senex CEO Ian Davies said the company believed the government’s rushed intervention from December 2022 failed to deliver the key criteria it was designed to meet. 

“Eastern Australia’s energy markets are incredibly complex and finely balanced, and the federal government’s proposed gas industry actions risk irreparably eroding investment confidence, undermining critical gas supply, increasing prices and risking Australia’s energy security,” Davies said. 

“The only sustainable response to high prices in a demand-inelastic domestic gas commodity market is additional domestic gas supply.

“The federal government’s current proposals instead threaten to suffocate industry investment confidence, likely requiring further interventions in the future, including the breaking of liquefied natural gas (LNG) export contracts to divert supplies to the domestic market and damaging relationships with our important trading partners.

“The result will mean investors like Senex’s majority shareholder POSCO International, a subsidiary of POSCO Group and one of Australia’s largest natural resource customers, will see the country as a much riskier proposition.”

The Australian Parliament at the end of last  year hastily passed the government’s Energy Relief package, which will put an initial 12-month cap on coal and gas prices as the government tries to rein in skyrocketing energy prices.

The Energy Relief plan will include a temporary price cap of A$12/GJ of uncontracted gas for a period of 12 months, a 12-month price ceiling on domestic coal of A$125/t in New South Wales and Queensland, and A$1.5-billion in targeted bill relief for businesses and households.

The government is also seeking comment on a proposed mandatory code of conduct for the wholesale gas market that includes a reasonable pricing provision, accelerating the introduction of the Australian Domestic Gas Security Mechanism (ADGSM), and boosting resources for the Australian Competition and Consumer Commission (ACCC) for implementation, monitoring and enforcement.

The code will apply to contracts between gas producers and their customers in the east coast market, and the government will undertake consultation on the scope of the code and whether it should be expanded to wholesale contracts sold by other market participants. The ACCC will continue to closely monitor and report on the behaviour of all market participants, including energy retailers, and take enforcement action where required to ensure competition across the market.

The code will include a provision for reasonable pricing. This will provide a basis for producers and buyers to negotiate domestic wholesale gas contracts based on guidance on reasonable pricing from the ACCC, which will reflect the long-run costs of domestic production and an appropriate return on capital. If producers and buyers are unable to agree, they may seek a binding arbitration determination.

“With the ACCC already flagging gas shortages without continued domestic gas supply, jeopardising the investment required to achieve exactly this could have dire consequences for eastern Australia,” Davies said on Monday.  

“Natural gas is a critical firming fuel in electricity generation and an essential input for manufacturing where there are currently no viable alternatives.

“It should be the federal government’s highest priority to secure continued investment to safeguard energy supply for Australian households and businesses, particularly while driving the nation’s ambitious renewables build-out. Reduced investment in new supply will result in the diminution of the critical safety net gas provides should this build-out not go to plan,” Davies said.

In mid-2022, Senex announced a more than A$1-billion investment to boost reliable and affordable domestic gas supply for Australian homes and businesses, including an estimated A$200-million injection into regional communities and the creation of hundreds of jobs.  

Following the passing of the gas market intervention legislation in December 2022, this investment is now on hold pending finalisation of this consultation.

Further, the intervention derailed Senex’s expression of interest (EOI) process for the sale of 229 PJ of additional gas to the domestic market from late 2024, which was conducted in good faith and in accordance with the existing agreed Voluntary Code of Conduct, Davies said.

The EOI was heavily oversubscribed, with offers for over 700 PJ of gas on contract durations of up to 15 years, demonstrating the willingness of seller and buyer to agree satisfactory terms for gas supply. 

Senex’s EOI process demonstrates there is no market failure for gas supply from 2025 and therefore no case for heavy-handed and enduring market intervention.

“With nearly one in five jobs in Queensland’s Western Downs reliant on the resources sector, regional communities in Queensland will sadly feel the impact of this reckless intervention,” Davies said.

“Australia needs clear, targeted and effective energy policy that enables the confidence to invest in new supply to ensure secure, reliable and affordable energy for manufacturing, businesses and homes, to keep people in jobs in regional Queensland, and to support Australia’s energy system transformation.

“Senex and its shareholders stand ready to invest billions of dollars in new energy supply for Australia, and have the balance sheet strength, capability and capacity to do so. But for this to happen Senex must be confident that the necessary regulatory settings are stable and sufficiently balanced to incentivise the necessary risk-taking of material investment in new gas supply.

“In its submission, Senex has set out a series of recommendations to the federal government that will give us the necessary confidence to invest in new gas supply and welcomes genuine collaboration aimed at meeting key objectives and criteria of this consultation for the benefit of all Australians,” Davies said.