Coalition Senators' Dissenting Report

Introduction

1.1The regulations referred to this inquiry present the culmination of the Albanese Government’s dramatic gas market interventions since their election.

1.2The Gas Market Code, more commonly referred to as the gas mandatory code of conduct, presents an opportunity for the government to remove substantial market freedom and place themselves at the centre of the operation of Australia’s gas market.

Market Intervention

1.3Over the last 12 months, the government has made successive drastic interventions into Australia’s domestic and international gas market.

1.4These interventions have caused significant damage to Australia’s reputation as an energy supplier and increase our sovereign risk. The damage that gas market interventions have had under Labor were acknowledged in multiple submissions to this inquiry.

1.5For example, the Australian Energy Producers, formerly the Australian Petroleum Production and Exploration Association (APPEA) stated in a submission to the inquiry that:

Together, these complex and often overlapping and contradictory interventions have compounded to create significant uncertainty across the gas market, including uncertainty among investors and project developers of domestic gas supply as well as among Australia's liquified natural gas investors and export partners.[1]

1.6The Australian Financial Markets Association (AFMA) articulated its concerns as follows: :

AFMA is concerned that these overlapping interventions are likely to reduce the effectiveness of market signals which may reduce investment and increase the risk of inadequate supply…As a result, we do not see that there is a good basis for ongoing interventions in the market.[2]

1.7Emphasising that market intervention should be a temporary rather than an ongoing mandatory requirement in the gas market in Australia, the Australian Energy Council (AEC) stated in its submission that:

In the AEC's view, given the dynamic and complex nature of energy systems, any mandatory rules (be they via industry codes of conduct or otherwise) should be implemented temporarily, and with caution, precision, and regular review to minimise risks of unintended consequences.[3]

1.8Through all of these submissions, the message is clear: the government’s ill-thought market interventions have caused significant industry uncertainty, and damaged Australia’s international standing as a reliable energy supplier.

1.9These comments should not be taken lightly, as currently, the approvals process for gas projects is a number of years. That means that if there is a freeze on investment now, there will be a substantial risk to Australia’s gas supply in the future, and the true ramifications of the Government’s attacks may not be seen for at least a decade.

1.10In addition to these industry comments, foreign partners have also expressed significant concern with the government’s conduct in relation to Australia’s gas market.

1.11As was reported in the Australian in April 2023, former Japanese Ambassador to Australia Shingo Yamagami stated that:

…energy and resources nationalism in Australia was now a ‘concern held by a number of Japanese companies’, with many representatives having ‘come to me and expressed their concern, some calling it a tilt to energy nationalism.[4]

The significance of a foreign diplomat to publicly highlight the growing international concern resulting from domestic policy decisions should not be under emphasised. Yet this warning was seemingly ignored by the Government, and they continued down their path of heavy-handed intervention, threatening Australia’s ability to continue supplying gas to our international partners.

1.12Further to this, the Energy Users Association of Australia (EUAA) told the committee that:

…you break the oligopoly by creating more competition with more people selling gas. If you did that, you'd need to do something to make sure that the smaller players can get independently into the market so we can improve competition.[5]

1.13This comment on a lack of competition in the domestic market was echoed by the Australian Competition and Consumer Commission (ACCC). However, based on the submissions by the gas industry and other peak bodies, the government’s market interventions are what have reduced industry investment and confidence due to the increased uncertainty and sovereign risk.

1.14It is ironic that the ACCC posits that the mandatory code will drive competition and investment when the government’s actions since coming to power have all been to reduce access and industry investment into the gas market.

Ongoing and Uncertain Interventions

1.15Another driver of industry uncertainty is the ongoing and unknown nature of the mandatory code.

1.16Despite the government’s promises that their interventions would be temporary, the introduction of the mandatory code of conduct appears to permanently include price fixing in the operation of the Australian gas market.

1.17The Australian Energy Producers stated in their submission that the ‘Government must bring forward the review of the Code with a focus on establishing a sunset date on the price cap provisions’.[6]

1.18This position is also supported by the Australian Energy Council, who stated that ‘the uncertainty is being driven now by the unknown impact of the Gas Producer Code’.[7]

1.19Both of these submissions highlight that industry is calling for clarity and an urgent review of the government’s interventions, yet it is to be seen whether the government will take action on those calls.

1.20Uncertainty around government overreach and intervention has plagued the consultation process for the mandatory code of conduct. But despite the calls for industry certainty and reviews, the most pressing call has been for the government to take action to increase industry confidence and supply.

1.21As Senex Energy stated in their submission:

…as stated throughout the consultation period, Senex considers that the only sustainable response to high prices in a demand-inelastic domestic gas commodity market is a stable policy and regulatory framework that encourages investment in additional domestic gas supply in both the short and long-term.[8]

1.22Yet throughout the government’s interventions, they have failed to provide any stable policy, clarity to industry or a secure regulatory framework that encourages investment in additional supply.

Gas Supply

1.23The most pressing and urgent call from the Australian Energy Market Operator (AEMO), the ACCC, industry and the Coalition has been for the government to facilitate an increase in supply in the gas market to avert looming shortfalls.

1.24Yet it has become evident, through industry comments and consultation on the gas code and other policies that the government’s interventions are doing the exact opposite.

1.25The Australian Energy Producers stated in their submission that:

With the government now at the centre of the gas market operations, it must prioritise putting in place the drivers to bring on the new gas supply needed to avoid the widely forecast structural gas shortfalls from 2026–27, particularly in southern states, and to mitigate the near-term risk of peak shortfalls in winter periods.[9]

1.26Despite the interventions and dramatic government overreach, they have made no attempts to help generate any new investment in supply in the gas market, particularly in the east coast.

1.27After the committee held a public hearing, the government released their consultation paper on the Future Gas Strategy. Industry had hoped that the strategy would outline the government’s plan to increase gas supply and stabilise the domestic and export market.

1.28As the Australian Energy Producers stated in their submission:

…the Future Gas Strategy must also prioritise addressing forecast structural gas shortfalls in the near-to medium-term by bringing on the new gas supply needed to power Australian homes and businesses securely and affordably.[10]

1.29However, the consultation paper has outlined the government’s plan to decrease demand, highlighting that they want a future with less gas production.

1.30This is concerning considering the looming risks of shortfalls in the domestic market, and it is disappointing that the government has taken the opportunity to outline a future with less gas rather than more.

1.31It has become apparent that the government has no plan to increase gas supply in the short, medium or long term, and through their destructive interventions, have significantly weakened the stability and security of Australia’s gas market.

1.32That the Australian Government urgently implement policy reforms that increase gas supply to avert the looming supply cliff.

1.33That the Australian Government redirects its approach to the gas industry, focussing on policies to increase production and industry confidence to secure supply and ease prices, instead of market interference that undermines investment certainty.

Senator Andrew BraggSenator Dean Smith

Deputy ChairMember

Senator for New South Wales Senator for Western Australia

Footnotes

[1]Australian Energy Producers (formally APPEA), Submission 5, p. 1.

[2]Australian Financial Markets Association (AFMA), Submission 2, pp. 2–3.

[3]Australian Energy Council, Submission 9, p. 1.

[4]The Australian, Australian ‘energy supply risk’ worries Japan: ambassador Shingo Yamagami, 23April 2023,https://www.theaustralian.com.au/nation/australian-energy-supply-risk-worries-japan-ambassador-shingo-yamagami/news-story/e3d3519e14e63f807632443e592e468b(accessed5October 2023).

[5]Mr Andrew Richards, Chief Executive Officer, Energy Users Association of Australia (EUAA), ProofCommittee Hansard, 21 September 2023, pp.4–5.

[6]Australian Energy Producers, Submission 5, p. 2.

[7]Australian Energy Council, Submission 9, p. 3.

[8]Senex Energy, Submission 3, p. 2.

[9]Australian Energy Producers, Submission 5, p. 1.

[10]Australian Energy Producers, Submission 5, p. 2.