By Jo Nova
Surprise: Government fixes price, and gas supply gets paralyzed
Now that the Australian government has played the Command Economy Joker Card, the gas industry has accidentally frozen. The old rules that set prices competitively have been set on fire, and the new rules are written in government jello. No one wants to set up new long term contracts when the government could change their mind any day, and the industry may either miss out on huge profits a year from now, or be in breach of “goodwill” and “reasonable price” provisions that are the legal equivalent of Ebola.
For some reason ordering people to have goodwill “or else”, just means everyone hires more lawyers, no one knows what they can “reasonably” charge, investors run for the hills, and production shrinks. It’s almost as if the free market turned into a Soviet economy…
h/t to Eric Worrall, via RicDre
Peter Hannam, The Guardian
Samantha McCulloch, the chief executive of the Australian Petroleum Production & Exploration Association (Appea), said…. “The lack of clarity on how the price cap order is to be applied alongside the threat of permanent gas price regulation has virtually paralysed the market.”
Companies could face a $50m penalty for breaching rules that are still being defined, she said…
So no one wants new customers now.
Retailers blame price cap for fears over gas supply
Rachel Baxendale, The Australian
Multiple energy retailers across the eastern seaboard have stopped taking new gas customers and others are ramping up their prices as they struggle to secure ongoing supply from producers following the Albanese government’s imposition of a wholesale price cap.
And energy retailers can’t get gas:
Australia’s second-largest energy retailer, AGL, has been unable to secure contract supply of gas for 2023, prompting it to cease taking new commercial and industrial customers…
Every energy retailer The Australian contacted said they had been unable to secure gas from producers under the $12/GJ price cap.
“No counterparty is currently willing to sell at the proposed $12 rate, and we’re not even sure how it’ll work in practice when the reforms come into place, since there’s very little that seems to be actual concrete around it right now,” Mr Yemm said.
Strangely price caps do not drill holes and find more gas:
“The superficial appeal of capping prices is quickly eroded as investment wanes and production falls, leading to sustained higher prices over the longer term and inevitable supply constraints,” Mr Heffernan said. “If the desire is to increase supply, especially during periods of high need, and reduce prices, then price caps do the opposite.”
“If suppliers don’t know what (the reasonable pricing) provision is, it would be difficult to write a multi-year contract,” Ms Reeve said.
“If they assume a future higher price, they may get caught out if that price is later determined to be ‘unreasonable’. If they assume $12/GJ continues, they may miss out on profits.
The most competitive household gas prices on the east coast are already as high as Jim Chalmers’ worst-case scenario, as retailers hike prices by a further 20 per cent from next month.
The Australian’s analysis of current market offers from Origin, AGL and EnergyAustralia shows prices have increased by 30 per cent in Queensland, 22 per cent in NSW, and 19 per cent averaged out across those states, Victoria and SA over the past year
Commenter Bruce at The Australian
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January 17, 2023 at 12:54PM