Gas market trigger won’t fix ‘bin fire’ left by Coalition, energy minister Chris Bowen says
The Albanese government has ruled out the early use of a gas market mechanism set up by the Turnbull government to limit energy price rises, saying it could not be activated until January and was not designed to cap prices.
The Australian domestic gas security mechanism was set up in 2017, and could not come into operation without consultation with the industry, new climate and energy minister Chris Bowen told his first media conference after being sworn in yesterday.
“It’s not an easy trigger to pull, it’s complicated, and if it was pulled today it would have absolutely no impact until the first of January anyway,” he said. “It was not really designed to see existing contracts undermined.”
Bowen, who began the press briefing by sharing the podium with emergency climate leaders, was pressed on what new treasurer, Jim Chalmers, has described as a “perfect storm” of price spikes in eastern energy markets.
“[The] former government promised a gas-fired recovery and left us a gas bin fire for the new government,” Bowen said.
A severe cold snap and outages of coal-fired power plants have lately sent wholesale energy prices soaring, forcing some smaller retailers to drop out of the market. Gas users, for instance, have been paying as much as $800 per gigajoule, or 80 times typical prices, prompting authorities to step in wth $40/gj price caps in Melbourne and Sydney earlier this week.
Suppliers and customers were also called by the Australian Energy Market Operator into urgent meetings yesterday to address “a potential gas supply shortfall event” in Victoria.
While Bowen said he was not ruling out future use of the mechanism – the responsibility actually sat with the resources minister, Madeleine King – his emphasis would be on avoiding decisions on the fly.
“We are facing a very serious situation,” made worse, he said, by the Coalition government’s “nine years of denial and delay” on climate action and 23 energy policies.
“Their ad hoc-ery, their changes of policy approaches, have left Australia ill-prepared and our energy markets ill-prepared for the challenges we are facing today in relation to gas and energy supply.”
To address the immediate issues, Bowen said he had spoken to his counterparts in the states and would seek a national energy meeting as soon as next week.
Tennant Reed, an energy policy expert at the AiGroup, said the gas security mechanism “would need to be totally rewritten to address this situation”.
“They could rewrite it – and unless they do, it’s just comprehensively useless in this situation,” Reed said, not least because it could not take effect until next year.
“The conditions for it to be triggered are not established, even with prices going through the roof,” he said. Any speedy rewriting, though, would set aside all the usual processes of consultation. “There are risks in doing that.”
Should the government seek to divert some of the gas now bound for export – which WA does with its 15% share reserved for domestic use – that would bring other consequences, such as on the international front.
“Besides all the usual stuff about not wanting to go to war with the gas producers, ending Australia’s longterm resource exports reputation and [so on], it seems like the diplomatic/values issue is probably a killer [for such an intervention],” Reed said.
Big energy consumers, though, are likely to continue pushing for some action by governments.
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Andrew Richards, chief executive of the Energy Users’ Association of Australia, yesterday demanded the gas industry “step up and play an active role to minimise the damage to the domestic economy of the unprecedented energy crisis sweeping the nation”, with prices at “stratospheric levels”.
“In desperate times like these, it is right that we look to governments for solutions,” Richards said. “However, it would be wrong to not require the gas industry itself to also play a significant role in bringing gas prices back to a level that allows manufacturing to survive and for families not to be terrified to turn on the heater in the dead of winter.”
Damian Dwyer, acting head of the Australian Petroleum Production & Exploration Association, noted Aemo had activated a separate Gas Supply Guarantee to deal with the supply challenges.
“We understand current spot prices, representing only 10% to 15% of the industrial gas market, are under pressure, and we are working with all parties to resolve the issue,” he said.
“The causes of the pressures are coal outages, relatively low levels of renewable power generation due to the weather and global market pressures arising from the Russian invasion of Ukraine,” Dwyer said. “We stress that the majority of manufacturers are unaffected because they are on long-term contracts which, not long ago, were offered for this year at price levels around $6/GJ to $9/GJ.”