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ABC News
ABC News
Business
business reporter Rhiana Whitson

Gas producers accused of bullying and price gouging, despite federal government intervention to cap prices

Major industry groups representing Australian manufacturers have accused the gas industry of getting around the federal government's gas price controls by withholding supply, leaving some businesses at risk of closure. 

East coast gas producers have effectively suspended new sales since the federal government announced 12-month price controls in December for the gas and coal wholesale market.

The government's intervention came after Australian energy prices — which are linked to the international market — soared last year as Russia's war in Ukraine drove demand and delivered record profits to producers. 

Since December, energy retailers and large wholesale customers who buy directly from gas producers have struggled to find new gas deals.

The supply squeeze is affecting uncontracted commercial and industrial customers. 

Industry groups argue it is also affecting everyday Australians because manufacturers are passing on costs to consumers. 

Some businesses have been forced onto the volatile spot market, or to sign contracts that are well above the price cap of $12 a gigajoule for gas.

One member of the Energy Users Association of Australia, which represents some of the nation's biggest manufacturers, was unable to secure a single new gas offer.

"The prices can be in the $30 to $40 a gigajoule range, when traditionally, we've been paying between $6 and $7 [a gigajoule]," Energy Users Association of Australia chief executive Andrew Richards says, adding some offers have been as high as $60 a gigajoule.

"Most businesses can't survive that kind of pricing pressure for a key input to their business," he says.

"It's certainly the indication of a highly dysfunctional gas market where consumers have no leverage, no matter how big you are."

AiGroup's chief executive Innes Willox says his organisation's members are also still grappling with unfair gas prices. 

"There is enormous frustration at how things have turned out," Mr Willox says.

"There's hardly any gas flowing to new customers in 2023 … And bad luck if you're looking for a contract for 2024 onwards, it is just radio silence."

Businesses feel the pinch

In January, Regina Glass — Australia's only glass fibre tissue manufacturer - was given only 10 days' notice that its gas bill would almost double to $102,000. 

That meant going from paying about $13 a gigajoule to $26 a gigajoule.

The company eventually found a cheaper deal at $21.09 a gigajoule, but its new retailer can increase the price at any time.

General manager Mark Pontil-Scala says the company's export market has already suffered as a result. 

“Thailand has declined to make a purchase, and we're waiting on Taiwan to go through — that alone is already showing us that the pricing is going to hurt us," Mr Pontil-Scala says.

"If we can’t get the sales through, it is a closure of another manufacturer in Australia."

Mr Pontil-Scala says the costs will also be passed onto consumers, adding to inflationary pressures. 

He wants the government and regulator to do more to rein in energy prices.

"Why should they [gas producers] be allowed to get away with that when it is Australia's natural resource?"

The Australia Energy Council (AEC), which represents energy retailers, has also voiced frustration on behalf of its members. 

Acting chief executive Ben Barnes says retailers are reporting they can not get enough gas to take on new commercial and residential customers. 

"It's quite widespread at the moment," Mr Barnes says.

"The challenge is how we can work through this interim period and ensure that customers are able to get the services that they need, at the price that they're willing to pay."

'Enormous frustration' 

About 90 per cent of Australia's east coast gas is controlled by three exporters — Shell, Origin and Santos.  

Last month, the ACCC warned of a 2023 east coast gas shortage, despite the regulator finding the LNG producers have enough uncontracted gas to prevent a domestic shortfall.

The regulator also warned producers to start supplying cheap gas or risk a $50 million fine. 

Since then, Shell announced plans to supply 8 petajoules of gas this year under the price cap —an amount industry insiders say is not enough to meet demand.

A spokesman for the ACCC told The Business there was no deadline for other gas producers to resume supply for uncontracted sales.

"It certainly looks like an oligopoly," Andrew Richards from the Energy Users Association of Australia says.

"There's plenty of gas around. It's whether they want to sell it at a fair and reasonable price is the key question that needs to be asked here.

"Their belligerent behaviour in the gas industry will see many businesses go broke and mums and dads too scared to turn the gas heater on next winter — that's an appalling position."

Industry says too risky to sign new contracts 

The ongoing price pain for gas users comes as the federal government works on a mandatory code of conduct for the domestic gas market. 

Submissions closed on Tuesday and the code is expected to be finalised in 2023. 

A major sticking point is expected to be how the government regulates reasonable pricing, when gas producers have become used to being able to charge customers whatever they like. 

Industry groups say the gas industry is playing a game of chicken with the federal government by withholding supply for new contracts.

The Australian Petroleum Production & Exploration Association (APPEA), which represents east coast producers, says the new rules under the price cap are still unclear. 

"There's considerable uncertainty there," APPEA Chief Executive Samantha McCulloch told The Business

"The industry wants to supply the gas, but we need to understand the rules of the game, particularly when there's a $50 million penalty hanging over the industry for failure to comply with rules that are still being defined," she says.

"We need clarity on what that code will look like, what the new regime will look like, to be able to enable those gas supply agreements to be struck from next year."

Despite LNG exports ramping up in recent years, the gas industry argues through APPEA that new gas reserves are needed to bring down prices. It also rejects the need for a price cap.

"The key driver of the increased prices in the domestic market is an under-investment in supply, so we need to bring on more supply," Ms McCulloch says.

In August, APPEA said there was enough supply to avoid a gas shortfall in 2023.

AiGroup's Innes Willox says the gas industry's reasons for holding back new gas sales are wearing thin.

“There's uncertainty all around," Mr Willox says.

"But that doesn't mean that they should stop supplying to their customers who are ready and willing to participate in negotiations to finalise contracts," Mr Willox says.

"It's now getting to be critical for many businesses that the gas supply does get turned on, and they do get some certainty going forward.

"At some point, the government is going to have to stand up behind what it has put in place, and it has to get gas moving.

"The point is, we can have all the government policies in the world trying to support Australian industry but if you don't have reasonably priced and available energy at industry's disposal, those policies pretty much turn to dust very quickly."

What about households?

It is not just businesses paying more for gas. Household budgets are also taking a huge hit, and gas prices also affect electricity prices. 

But like other contracted gas, the supply for residential and small business customers is not at risk in 2023. 

"Generally, our hope would be that as more gas comes into the market at a relatively cheaper price, that we'll see retailers able to reduce the bills [they charge] the customers," the energy council's Mr Barnes says. 

However, the AEC is pushing back on calls for the new mandatory code of conduct covering the gas market to include retailers. 

“We see the market between retailers and customers to be fundamentally different to the market between producers and very large customers and retailers,” Mr Barnes says.

Phillip Vassallo is not waiting for energy prices to come down. The 21-year-old lives with his parents and is helping them to gradually get off gas.

“We've seen our gas usage go down substantially, and therefore the costs go down," Mr Vassallo says.

For households struggling with higher energy bills, getting off gas is a lot easier than it is for manufacturers.

Analysis from the Climate Council found households could save between $500 and $1,900 a year by ditching gas and going electric.

So far, Mr Vassallo's household has switched to split-system heating and cooling, and purchased a gas induction cooktop to get used to the idea of no longer cooking with gas. 

He is encouraging others to go electric. 

"As individuals, we can take small steps and often it's cheaper in the long run anyway."

As gas users, producers and the federal government thrash it out over the future of Australia's gas market, the Energy Users Association of Australia's Andrew Richards is still hopeful a solution can be found.

"We've been saying to them [east coast gas producers] for a long time... 'This is a life-changing moment for many Australian companies … You can be heroes and offer them fair and reasonable pricing,'" Mr Richards says

"'Or you can be the villain and be belligerent and price gouging.

"Now up to this point in time, they have been the latter."

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