New code is one piece of large gas policy puzzle

Representatives of industrial gas users today reported that following more than a year of negotiations with the gas suppliers’ association on a voluntary Gas Producers Code of Conduct, the Code will now move into implementation.

Ai Group, Chemistry Australia, the Energy Users’ Association of Australia and Manufacturing Australia believe that if gas suppliers sign up and comply, the Code can potentially improve the consistency and transparency of gas supplier behaviour in negotiations over large gas supply agreements. But the Code will not address the central concerns of gas users, which relate to the price driven loss of competitiveness that threatens the future of many facilities and the jobs and investment associated with them.

In 2020 the Federal Government asked users to negotiate a voluntary Code with suppliers in order to “level the negotiating playing field for gas producers and consumers”. Gas users welcomed that intent and the focus on gas market reform given the ongoing challenges of operating in what has been characterised as a dysfunctional market, requiring the type and level of reform proposed.

Industrial gas users were clear throughout the process about their key priorities in a Code:

  • Most importantly, to address the critical issue of price and competitiveness – the overwhelming concern of gas users with the Eastern Australian domestic gas market – through an internationally competitive gas reference price mechanism;
  • To make the Code meaningful and accountable by making it as legally enforceable as possible; and
  • To extend the coverage of the Code to Ethane as well as Methane.

After hard work from all sides over the past year there has been only limited progress against these critical needs. Users made best efforts to reach agreement with suppliers on market-based improvements. However the resulting Code:

  • Does not establish a process to help achieve an equitable gas reference price, and looks unlikely to have any impact on overall price outcomes in the market. As a voluntary code, this had the potential for inclusion, but was unable to be achieved;
  • Is only weakly enforceable, with dispute resolution unable to make orders on most subjects and compliance backed solely by the potential for parties to be judged in the court of public and political opinion; and
  • Includes Ethane as requested, but with the same gaps and weaknesses as for Methane.

This outcome resulted because there was not, and perhaps never could have been, agreement between User Associations and APPEA on the threshold issue of pricing; and because the framework of a voluntary Code is both inherently hard to enforce and unable to overcome differences of view between negotiating parties.

Major gas users require globally competitive gas inputs for long term feedstock and energy contracts to underpin plant turnaround investment decisions. Sadly, we have recently seen some of our fears of a loss of industrial capacity come to pass. Reduction in Australia’s major industrial base weakens sovereign capability, critical supply chain, carbon neutrality and circular economy objectives.

Affordability of gas remains extremely challenging for industry, and prices have risen significantly from the pandemic-induced lows of 2020. In the last year a substantial number, if not all, of the contracts to supply end use commercial and industrial customers in Eastern Australia have been facilitated by the Queensland Government’s Australian market supply condition which requires covered gas to be sold only to domestic consumers. The need for reliance on this pragmatic policy intervention is not a sign of good health in the underlying market.

The success of the voluntary Code will be up to the gas supply sector participants that sign it, and the onus is on those organisations to demonstrate that it can work. Should the Code fall short in operation we will raise this in scheduled reviews and seek appropriate reforms, including a prescribed or mandatory Code if necessary.

A confident path forward for Australian gas users will require a mix of multiple solutions. Commercial arrangements between buyers and sellers are foundational. Ongoing market reform and transparency, including the scrutiny provided by the ACCC, are essential. Demand side policies to promote efficiency and support transition to new energy sources will help individual users and the market as a whole. The Gas Code is one piece of this mix. Having worked for the best text that was achievable, our organisations will maintain efforts across all arms of policy and action to achieve a better future so that Australia’s gas users are able to continue their contribution to the economy and the communities they are part of.

Innes Willox

Chief Executive

Australian Industry Group

Samantha Read

Chief Executive Officer

Chemistry Australia

Andrew Richards

Chief Executive Officer

Energy Users’ Association of Australia

Ben Eade

Chief Executive Officer

Manufacturing Australia

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