Businesses in Australia are already collapsing amid a looming crisis, with some now calling on the government to take extreme measures to prevent ‘apocalyptic’ price hikes.
Aussies will soon feel the pain of skyrocketing gas prices and fears of “apocalyptic surges” have sparked calls for the new Albanian government to take an extreme response.
Pressure is mounting, including from groups like Manufacturing Australia, for the government to pull the “gas trigger” to cut prices.
The Australian Domestic Gas Security Mechanism was introduced in 2017 to limit gas exports when there was a shortage of supply in Australia.
But treasurer Jim Chalmers has so far resisted calls to pull the trigger, saying it wasn’t something that would have immediate effect and that a whole host of issues had to be considered.
Innes Willox, CEO of the national employers’ organization Ai Group, also told news.com.au that in its current form it really wouldn’t be possible to pull the trigger and even if it were activated it wouldn’t be until in can start in January.
So what is happening and what can be done about rising prices?
Wholesale gas prices are rising
Australians may have seen headlines about “apocalyptic” surges in energy prices, including a 50-fold spike in wholesale gas prices in Victoria.
The situation has led the Australian Energy Market Operator (AEMO) to step in and cut gas prices in Sydney, Melbourne and Brisbane to $40 per gigajoule – although this is still five times higher than last year’s prices.
In most cases, this increase in wholesale prices has not yet passed through to people’s energy bills, as many retailers have signed long-term contracts for gas at much lower prices.
The Australian Petroleum Production & Exploration Association (APPEA) said about 85 to 90 percent of the gas market is covered by long-term contracts, known as gas supply agreements (GSAs), offered for this year — and locked in by many customers — at price levels. from about $6 per gigajoule to $9 per gigajoule.
But eventually higher prices will flow to consumers and are already being felt by manufacturers who rely on buying gas at bargain prices.
Mr Willox said households are likely to feel the impact of higher standard electricity prices from July onwards.
A wholesaler and distributor of natural gas, Weston Energy, has already collapsed after skyrocketing prices left it unable to fulfill contracts with companies to supply gas at the price it had previously agreed. Weston had gas contracts with more than 400 companies and government agencies along the East Coast, including in NSW, ACT, South Australia, Victoria and Queensland.
There are warnings that other retailers could follow, as happened in the UK, where 30 retailers collapsed due to rising wholesale energy prices.
Our gas is sent abroad
Rising prices have been attributed to a number of factors, including coal-fired power outages, relatively low levels of renewable energy generation due to adverse weather conditions, and international demand for gas due to the Russian invasion of Ukraine.
APPEA Acting Chief Executive Damian Dwyer has rejected the idea that Australian gas exports are to blame.
“Gas price increases are not being driven by gas exports or shortages,” he said.
But other experts have pointed to the difference in prices on Australia’s east coast, compared to Western Australia, that a gas reservation that sets aside a certain amount of gas for domestic use†
On the East Coast, spot gas prices were around $30.38 last month and are up a staggering 529 percent in two years, from an average of $4.83 per gigajoule as of May 1, 2020, data from Gas shows. Trading Australia.
In comparison, the price in WA was expected to be much lower — just $5.55 this month — and price increases were also more modest, rising about 160 percent, from an average $2.13 per gigajoule on May 1, 2020.
The price increases in WA were also not associated with price increases abroad.
“It’s mainly due to the expiration of long-term contracts with North West Shelf Gas and reduced production from that facility,” Allan McDougall, general manager of Gas Trading, told news.com.au.
Australia is the world’s largest exporter of liquefied natural gas (LNG) transporting 80 million tons of gas overseas annually.
Energy finance analyst Bruce Robertson of the Institute for Energy Economics and Financial Analysis (IEEFA) said Australia should have cheaper gas prices as the industry is heavily subsidized and new areas of exploration have been opened up for exploration.
“Yet the gas industry is doing the favor by charging Australians too much for gas,” he said.
“It will never end until we have a domestic gas reservation policy in place, just like Western Australia.”
Why can’t we pull the gas trigger?
The Australian Domestic Gas Security Mechanism can be activated if there is a predicted gas shortage, but it cannot be activated on the sole basis of overpriced prices.
Mr. Willox does not believe that the power of gas export control can be activated as it is currently written.
“If activated, it can’t start until January; and if it launches, it’s likely it won’t be able to be applied to current exporters,” he said.
In short, the rules would have to be completely rewritten to be of any use in this immediate situation.
“Whether it should be used is a separate and very difficult question given the global energy security situation.”
So, what can we do?
Treasurer Jim Chalmers has said he would speak with Climate Change Secretary Chris Bowen and Resources Secretary Madeleine King and work with industries under the most pressure, as well as gas companies.
“This situation is so serious for parts of our economy that it’s so dire that we shouldn’t pretend it’s flipped overnight by one or the other switch when it isn’t,” the spokesperson said. Mr Chalmers to Patricia Karvelas of ABC Radio National.
“We should not pretend that there is necessarily a quick solution to this challenge. It has been building for the better part of a decade. The only medium-term solution is a decent energy policy and we are working hard to implement this.”
Bruce Mountain, a professor at Victoria University, believes that Australia should consider introducing a “windfall tax” on those companies that will make huge profits as a result of the shocks caused by the war in Ukraine, including an increased demand for gas.
“The profit they make is not their own,” Prof. Mountain told news.com.au.
The money raised can then be used as a buffer for affected industries and households.
While Prime Minister Anthony Albanese had previously rejected the idea of introducing a windfall tax, Professor Mountain said British and European leaders had also initially rejected the idea before changing their mind.
He said Australia did not want to lose its gas-dependent production or processing operations.
“The government somehow has to make tough choices and I don’t think it’s reasonable for this to be on the shoulders of taxpayers,” he said.
Recognizing the complexity of the task, Mr Willcox said new energy options – from renewables and storage to biogas, hydrogen and energy efficiency – have been difficult to accelerate amid global supply chain challenges, skill constraints and inconvenience of communities around energy megaprojects.
“The most sensible moves on both the demand and supply sides to build for the future and reduce our exposure to fuel costs will take time to realize,” he said.
“Short-term responses will also be needed to help vulnerable industries and households. They should be fast, targeted and have a clear transfer as the benefits of longer-term measures are achieved.
“The new Albanian government has an unenviable but urgent task to respond to this crisis. It’s not something they can or should do alone. The States have many relevant levers in their hands, as do the energy market authorities, energy suppliers and energy users.”
Willcox said the Commonwealth’s first task was to bring everyone together.
“Apocalyptic surges in energy prices threaten chaos for industry and pain for households. They demand a national, integrated and strategic response.”
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