Chapter 2Views on the code
Introduction
2.1This chapter examines stakeholder views on the Competition and Consumer (Gas Market Code) Regulations 2023 (the code). It is informed by the submissions received, evidence provided at a public hearing in Canberra on 21September 2023, and additional material submitted to the committee.
2.2This chapter provides an indicative account of the key issues relating to the code and concludes with the committee’s views and recommendations.
Views on the Gas Market Code
2.3As outlined in Chapter 1, the Gas Market Code is a mandatory industry code prescribed under Part IVBB of the Competition and Consumer Act 2010 (the Act) intended to facilitate a well-functioning domestic wholesale east coast gas market.
2.4Noting the general policy intent for the measure, inquiry participants presented mixed views in relation to the code which came into effect on 11September 2023. Some stakeholders expressed strong support for the code and its objectives but offered suggestions to bring forward the planned review period and establish a sunset date. Other stakeholders believed that market intervention could have unfavourable economic impacts on the Australian gas market and suggested that alternative options to the code should be considered.
2.5The key issues and suggestions in relation to the code that were raised throughout the inquiry process are outlined in more detail below.
Impacts of market intervention
2.6Various stakeholders argued that the Gas Market Code was necessary, particularly for industrial energy users who rely on affordable gas and supply certainty to operate businesses across the country, as well as supporting a least cost transition to renewable energy.
2.7The Energy Users Association of Australia (EUAA) told the committee of ‘the enormous bargaining imbalance with the gas industry’ and the rationale for the code’s implementation to address the ongoing inequities in relation to both supply and transparency of information in a market ‘controlled by effectively an oligopoly’. The EUAA described the seriousness of the problem where even ‘the largest gas users often find themselves at a severe disadvantage that has meant they have no choice but to pay in excess of $30 a gigajoule for gas when they used to pay $5’.
2.8The association commented on the ineffectiveness of a voluntary code to change the behaviour of energy producers, due to no consequences for noncompliance, as a reason for a mandatory and enforceable code being required.
A voluntary code was never going to work, because it’s voluntary. There were no consequences for noncompliance…A voluntary code relies on the goodwill of participants to do the right thing, and what we’ve seen over the last 12 to 18 months is a lack of restraint from the gas industry, selling contracts at $30 or $40 per gigajoule, which is just outrageous. A mandatory code of conduct requires them to [participate]. It requires them to do the things that the ACCC is directing them to do.
2.9When asked whether it is necessary to have a mandatory code as well as price caps to address the inherent problems within the market and power imbalances, MrAndrew Richards, Chief Executive Officer of the EUAA stated:
Yes. To start with, that's required. A large part of the code goes to behaviours, because it's not only price; it's terms and conditions…the process and the terms and conditions that surround the price are just as important as the price. We hope that over time the code and the ADGSM [Australian Domestic Gas Security Mechanism]…and other things that are happening in the market improve domestic supply and improve competition and that we get to a workably competitive market where we can get rid of this thing. This is necessary only because we don't have a workably competitive market. Now, this is what the ACCC is saying as well: we don't have a competitive market. It's too opaque. It's controlled by too few; 90 per cent of domestic gas is controlled by three participants. Clearly it's tough to get a good outcome in that environment.
2.10The EUAA stated that the mandatory code is a logical but also necessary first step in ensuring households and businesses have access to gas at a fair price and on reasonable terms by improving transparency and evening up the balance of power in negotiations. Further, it commented that the price anchor would assist in this process by acting as a guide to understand what a fair and reasonable price might be and would not have a detrimental impact on the gas industry nor on the market’s capacity over the long term to attract investment and provide more supply.
The fact is the code of conduct has a relatively minor impact on the gas industry, and we don’t believe it will affect their drilling programs either positively or negatively, it’ll be fairly neutral…We believe the code is a vital protection for Australian households and businesses and should have bipartisan support.
2.11The EUAA were of the strong view that disallowing the code would increase energy bills and hinder its members participating in and supporting Australia’s energy transition to net zero.
…we believe a vote against the code of conduct is a vote in favour of higher energy bills. It's a vote in favour of more expensive food and more expensive houses, amongst other things. Voting against the code of conduct will also negatively impact a number of key sectors, such as steel, aluminium and cement, that are vital to a least-cost energy transition.
2.12Similarly, the Australian Industry Group (Ai Group) expressed its support for the mandatory code, expressing positive sentiments that it will flow through to retail gas buyers. It argued that the behaviour and reasonable price provisions as well as exemptions are important to strengthening confidence in the wholesale gas market and will contribute to significant change in its underlying structure.
2.13While reducing the influence of international volatility on local gas prices is sensible, Ai Group were of the view that Australia also needs to avoid a local supply-demand mismatch that would spike prices and reduce reliability. Accordingly, they argued the government’s regulations should come into effect and have a chance to operate and be judged on their performance:
Ai Group urges the Senate to allow the Code to come into force, while contributing to the development of a broader strategy to keep meeting energy users’ needs…We advise against holding back on the operation of the Code in the meantime; it is important to strengthen contracting in the gas market, which is emerging from a freeze and should not be thrown back into uncertainty.
2.14However, other stakeholders raised broad concerns regarding the code and were of the general view that market intervention in the east coast gas market has added unnecessary complexities that should be reconsidered despite the existence of unfavourable economic conditions in recent years.
2.15Suggesting that a decline in Australian gas prices occurred prior to the government’s intervention, the Australian Financial Markets Association (AFMA) were uncertain of the policy rationale for the intervention in the east coast market. AFMA submitted that a decline in gas market prices in recent times has been the result of market forces, where increased supply of available gas has reverted prices to more normal levels.
2.16It argued that the code, as well as other regulatory changes that have been implemented since 2022, would have an impact on the transition to net zero. Further, that government interventions pose a significant risk to the development of the market and are ‘likely to reduce the market signals which may reduce investment and increase the risk of inadequate supply’. Accordingly, AFMA suggested that the basis for the interventions should be reconsidered during the review period to determine their suitability in the current climate.
2.17A contrasting view was presented by Ms Gina Cass-Gottlieb, Chair of the Australian Competition and Consumer Commission (ACCC), who provided evidence to the committee recognising international influences and ongoing price fluctuations as a reason for the code being required.
…we still see the possibility for volatility and unpredictability and also prices that are still higher than the pre-invasion prices. It remains a situation in which the level of price needs careful monitoring and observation, but there is certainly mitigation happening internationally.
2.18Similarly to AFMA, Senex Energy (Senex) believed that regulatory intervention in the gas market could not successfully achieve the desired intent and purpose of the code. Rather, they were of the view that such intervention acts as a significant deterrent to investment. Senex submitted:
…Senex considers that the only sustainable response to high prices in a demand-inelastic domestic gas commodity market is a stable policy and regulatory framework that encourages investment in additional domestic gas supply in both the short and long-term. Sustained investment in new gas supply will continue to stall without the regulatory certainty needed to support these highly capital-intensive projects.
2.19Also indicating that there has been a number of government interventions in the east coast gas market over the past year, the Australian Petroleum Production and Exploration Association (APPEA, now known as Australian Energy Producers) were of the view that:
…these complex and often overlapping and contradictory interventions have compounded to create significant uncertainty across the gas market, including uncertainty among investors, project developers of domestic gas supply as well as among Australia’s liquified natural gas investors and export partners.
2.20At the same time as voicing these concerns, APPEA maintained the view that the code should not be disallowed due to the implications that would have on the market. In evidence given at the public hearing, Ms Samantha McCulloch, Chief Executive Officer of the organisation, stated that the industry cannot afford another prolonged period of uncertainty where no-one understands the rules of the game in terms of the east coast gas market:
We urgently need new gas supply in the market so we [can] provide the reliable and essential energy needed by Australian households and industry. Again, while we see that the code is far from perfect, we think that it provides a framework that can allow projects to move forward. We're still waiting on some clarity around exemptions, and for negotiations with government on private individual projects, but we are keen to move forward now.
2.21Woodside Energy considered that other policies could be implemented to achieve the stated objective of the code, that being, to alleviate pressure on increasingly high gas prices and create greater supply for the domestic market. Such policies, it suggested, could include:
prioritisation of domestic gas projects to increase supply (i.e., remove duplicate approvals);
developing a national end-to-end energy plan for the energy transition that considers the behaviour and conduct of upstream, midstream, and downstream participants;
allowing gas and coal-fired power stations to participate in the Commonwealth Capacity Investment Scheme;
promoting a collaborative approach across the energy sector to drive new thinking and ideas; and
if necessary, use existing enforcement agencies to review market behaviours.
2.22In response to the concerns raised by these stakeholders, the Department of Climate Change, Energy, the Environment and Water (DCCEEW) articulated the objectives and rationale for implementing the mandatory code underpinned by a compliance and enforcement framework to address the oligopoly and unviable behaviour prevalent in the market.
The code has been designed with, in essence, three sets of objectives. The first one is to achieve reasonable prices for gas consumers in Australia on reasonable terms, so there is a pricing framework embedded in the code. The second one is a set of conduct provisions to govern the way contracts are done within the Australian east coast gas market. The third one goes to issues of supply in the market, so ensuring that there are incentives to promote the supply of gas that we need in the market to meet projections of demand.
2.23The ACCC advised the committee that its recommendations to the government about the wholesale gas market and the implementation of a mandatory code were on the basis of its inquiry into gas supply conducted in 2021 and 2022. The ACCC advised that it had uncovered a lack of competition in the wholesale markets, ‘with the LNG producers, exporters and their associates having influence over close to 90 percent of the 2P [proven and probable] reserves through a combination of direct investment, joint ventures and exclusive arrangements’.
2.24Accordingly, the ACCC advised that the establishment of the code would help address the power imbalance in the existence and supply of gas within the domestic market.
Our assessment of the upstream market demonstrated that the LNG producers held market power. They are also the producers that have access to the international market. The combination of having market power and a very high and volatile international price meant that, in effect, we were exposed to international prices through the severe disruption of last year. It is rebalancing, but we are still seeing prices that are significantly above the cost of production in the international market. The existence of the code provides some protection for our domestic market against the combination of market power and high international prices.
2.25Ms Cass-Gottlieb, Chair of the ACCC, stated that the introduction of requirements to notify with a minimum time frame alongside good faith obligations has meant that there have been significant improvements to the process, whereby formerly there was no engagement in negotiations. The ACCC also noted that the release of guidance in August 2023 provides clarification on the process to assist industry participants in operation and compliance obligations under the code. In outlining this information, the ACCC remarked that to date, there has also been good levels of compliance with the order.
2.26Importantly, Ms Cass-Gottlieb spoke about signs that the code has shown which demonstrate it is achieving its purpose of decreasing prices in the domestic market:
…following the introduction of the caps, some users reported that prices quoted by suppliers fell from highs of $65 per gigajoule—that was at the time of the key spike in prices following the invasion of Ukraine, but it was for supply in 2023-24, or forward supply—with prices offered by retailers, who are not subject to the price cap, appearing to be in the range of $18 to $20 a gigajoule. In other words, the cap at the wholesale level had flowed through.We also can see at this time, 18 September 2023, in looking at the producer supply price on the short-term market prices as a proxy of it—so the 30-day average price—a price in Victoria of $9.51 per gigajoule and a 30-day average price of $10.47. Basically, at Wallumbilla, Brisbane, Sydney and Adelaide, the key short-term market supply points, it is all either less than or around $10.60 a gigajoule, with a maximum of $10.92.
2.27Addressing concerns raised by inquiry participants that the implementation of the mandatory code would have a detrimental effect on investment in Australia, DCCEEW assured the committee that this would not be the case. The department emphasised that the code would provide investment certainty to the industry against a backdrop of extraordinary international events.
The Australian government’s response was to utilise its capacity to put in place a gas price cap, put in place a mandatory code of conduct with a price anchor in it, but with a review point in the middle of 2025. The code framework and the exemptions framework are built around giving certainty to industry. When they make an enforceable undertaking to the government, in a sense, it’s a two-sided undertaking: the undertaking from them is around supply; the undertaking from the government is around giving them certainty over the life of the increase in supply or increase in investment that they commit to undertaking. So it’s actually built around giving investment certainty.
Exemptions
2.28As outlined in the preceding chapter, the Gas Market Code contains various ‘deemed exemptions’ from requirements in the code. Conditions are required to be met for those exemptions to apply to the provisions in the code from which a party will be exempt.
2.29APPEA raised concerns in relation to grants of conditional exemptions under the code and argued that the current process ‘is opaque, based solely on ministerial discretion and can be expected to lead to gas supply being negotiated on a project-by-project basis [and] company-by-company basis’.
2.30In its evidence to the committee, DCCEEW and the Department of Industry, Science and Resources (DISR) provided specific details on the decision-making process in relation to exemptions under the code:
…the energy minister has joint decision-making power with the resources minister when notifying the ACCC to make a determination under reasonable pricing provisions of the code. Both ministers have the power to assess and make decisions on conditional ministerial exemptions, applications, variations, revocations and renewals, under part 8 of the code. This includes issuing corresponding condition notices and decision notices. The Treasurer and the industry minister are consulted before the energy minister and resources minister grant those conditional exemptions. Then, as Mr Duggan alluded to, the energy minister and resources minister can jointly call a review of the code and jointly decide on who is qualified to undertake the review.As Mr Duggan has pointed out, both departments work very closely in assessing those applications for exemptions. We also work very closely with the Department of the Treasury, and within the department of industry we work closely with our Industry colleagues that report up to Minister Husic.
2.31The ACCC clarified that it is not involved in the process of granting Ministerial exemptions under the code:
The ACCC is not responsible for granting exemptions. To obtain a conditional Ministerial exemption, producers must apply to the Minister for Climate Change and Energy, who together with the Minister for Resources will have joint responsibility for making exemption decisions. The ACCC has a role enforcing compliance with a condition specified in a Ministerial exemption.
2.32DCCEEW also provided details of the key aspects of the exemption’s framework within the code and how it operates to incentivise supply of gas to the domestic market.
2.33Referring to the first element of the framework applying to large gas producers (producing in excess of 100 petajoules of gas per annum in the domestic market), DCCEEW explained that producers would enter into an enforceable undertaking, which would be a commitment to supply gas additional to what would otherwise have been supplied to the market. Through the operation of the market, this would put downward pressure on price of the short to medium term and would assist gas users to access the gas they need at reasonable prices. Mr Duggan stated that this element would assist with one of the objectives of the code to increase domestic gas supply to meet needs.
The way the exemptions framework works is that they would enter into an enforceable undertaking, which would be a commitment to supply gas additional to what would otherwise have been supplied into the market. We would anticipate that, through the operation of the market, that would put downward pressure on price over the short- to medium-term. In a sense, that assists with gas users accessing the gas they need at reasonable prices. But it also helps, as I said before, with one of the objectives of the code, that being around shoring up our domestic gas supply to meet needs. This has been important, in particular for many of the large gas producers that have been seeking to undertake new investments, where the market price for some of those foundational contracts to put those new investments in place, which can, in many cases, take a decade or longer—we had examples late last year of those foundational contracts being set at a price that was in excess of the $12. In order for that investment to occur, that exemption provides for that increase in supply.
2.34The second element of the exemption framework relates to small producers (producing less than 100 petajoules per annum). DCCEEW outlined the rationale for providing exemptions to this category of producers is to promote competition in the market. Mr Duggan stated that by excluding small producers (with the exception to those selling to an exporter) and providing them with the opportunity to increase their gas supply, more competition is promoted.
2.35DCCEEW explained that the third set of exemptions relating to the wholesale contract market for contracts beyond a certain duration, is intended to carve out short-term trading markets. Mr Duggan articulated the importance of doing so in order to address unanticipated gas needs through market mechanisms by allowing price to ration that supply.
Establishment of a retail code
2.36While recognising the very recent implementation of the wholesale gas market code on 11September2023, the Australian Dairy Producers Federation (ADPF) recommended that consideration should be made to implementing a retail code in the future to help industry users decrease high energy costs and limit the risks presented by fast-rising gas and electricity prices.
2.37Explaining that gas is the only energy commodity that the dairy industry is able to currently utilise for particular dairy manufacturing processes, the ADPF argued that substantial increases in gas and electricity costs have increased production costs ‘further adding margin pressure to diary manufacturers and putting upward pressure on prices for consumers’. ADPF articulated their concerns as follows:
…there remains a lack of transparency on the contract negotiation process and price for industrial users, with ongoing limited retailer choice, limited gas supply, high prices and a lack of action by regulatory authorities. Members continue to report challenges in obtaining gas offers and that when they receive offers the prices remain high.
Whilst there has been some stabilisation in spot market prices, contract pricing on offer remains around $20/GL—an $8.00 differential to the $12/GL gas price cap—and still significantly above the gas prices of 2022.
2.38In its evidence at the public hearing, the ADPF highlighted beneficial aspects of the wholesale code, which it argued, should be in turn considered for the retail market. Namely, the transparency in the terms and conditions that are available to be negotiated, having the right time period to be able to negotiate and clear governance processes as to how the conditions would be monitored were examples of measures in the mandatory code which would be helpful in a retail code when developed.
2.39Acknowledging these suggestions from the ADPF, the ACCC advised the committee that impacts of the mandatory code are being monitored in the context of the retail sector and that the establishment of a retail code would be considered in due course. These considerations would be informed by the review it has commenced into retailer selling practices and pricing as it relates to the supply of gas to commercial and industrial customers.
2.40Discussing both the wholesale and retail markets, DCCEEW advised the committee that the effects of the mandatory code are expected to flow through to retail gas prices over time. On this point, Mr Simon Duggan, submitted:
In the gas market, retailers tend to contract for their gas supply typically one to two years in advance of selling it into the market. The gas price cap was brought into play at the end of last year, setting prices at $12 in the east-coast domestic market through to towards the end of this year. In that context, as new contracts become due for those retailers with the wholesalers, we would expect to see those prices come down towards the $12 mark and then, as that occurs, those retailers to pass on the equivalent through to the retail market. There is a bit of a time lag implicit in the connection between the wholesale market and the retail market, but we would expect it to flow through over time…when we looked at what we could expect to see flow through for financial year 2023-24, we were looking at the potential for a 20 per cent increase in retail gas prices. Following the imposition of the $12 cap, our best estimate—and this is still the case—is that we're looking more at a four per cent increase. There are very significant implications from that, but it occurs over time. It hasn't occurred to the full extent yet, but we would expect to see that pass through over the coming months.
Review mechanism and sunset date
2.41Part 9 of the code requires a review to be undertaken after two years of operation. The government has the discretion to undertake a review at any time should it determine the market to be workably competitive or the code is not achieving its objective of adequate supply at a reasonable price and on reasonable terms. The code’s review mechanism enables the government the ability to refine, strengthen or disable aspects of the code, including the price cap, if they are no longer relevant or fit for purpose.
2.42APPEA suggested that a review of the code be brought forward (and that the terms of reference be made known well in advance) with a focus of establishing a sunset date on the price cap provisions. APPEA were of the view that this is necessary to ‘avoid the impact of permanent price controls on the market’ and submitted:
To minimise the long-term impacts of the Code on investment in the sector, including eliminating the ongoing uncertainty around if/when the price cap may be revoked, and to return as quickly as possible to an open and competitive wholesale gas market, it is recommended that a sunset date on the price cap provisions of the code be included as part of the code review process. Should shortfalls forecasts persist, the review should be brought forward in order to fast-track the sunsetting of the code.
2.43Senex were also of the view that a sunset date be established, and stated that:
A positive first step would be amendment of the Mandatory Code to insert a sunset date on the pricing provisions so industry can have the certainty it needs to make much needed investment in new gas supplies over the longer term. A sunset date of 24 months from commencement of the Mandatory Code would be consistent with the Emergency Price Order and other market intervention regimes.
2.44Concerned that recent regulatory amendments would present possible risks to the development of the gas market, AFMA encouraged a broader ‘review of the various interventions made to date’ to be undertaken by policy makers ‘to determine if they are fit for purpose’ and whether this is a solid case for ongoing market intervention as discussed above.
2.45Notwithstanding the above suggestions, the committee received evidence articulating the importance of maintaining the code before any attempts are made to have it removed.
2.46For example, EUAA stated that while the code is not desirable, it is playing an essential role in mitigate the power imbalance that exists in the market. The association were of the strong view that a sunset date should not be considered until the ACCC is satisfied that a workably competitive market is in existence and there is clear evidence of that, and until then, ‘the code needs to stay in place’.
2.47In evidence given at the public hearing, the ACCC advised the committee that the government would be in a position, informed by a review, to test whether the conditions for a workably competitive market exist to deliver adequate supply at a reasonable price for the domestic market, and that a review is more important than sunsetting arrangements. Mr Gina Cass-Gottlieb informed the committee:
…that the review is the most important point, because the review provides the opportunity and occasion for both full submissions and consultation with industry and then advice that can best inform government decision-making, and on that point it is critical. There is one factor we see as important in terms of a question of whether or not there’d be a sunset in the code. Today we still sit in circumstances of reasonable volatility and uncertainty due to geopolitical events, and in those circumstances, it can be hard to determine a final date from a sunsetting perspective, rather than have a review that can then inform it.
2.48A workably competitive market, as defined by the DCCEEW ‘is when we observe a market where domestic prices are reflective of the costs plus a reasonable return on investment’. DCCEEW were also of the view that, until Australia is in this position or if this can be achieved by the point in time of the review period, it would not be ideal to start considering sunsetting provisions.
2.49In relation to the terms of review, the ACCC outlined the process that would be undertaken—akin to all consultation processes—would be to allow for ample time for stakeholder participation and feedback in the development of the terms in advance of the review taking place. In light of a suggestion that the terms of the review be known now rather than in the future, Ms Cass-Gottlieb explained to the committee:
We certainly see that it will be in the conduct of the review, and that would mean in advance of asking for submissions. For instance, whenever we run an inquiry we produce either an issues paper or a discussion paper with enough time to enable industry participants to be well informed about the questions that we're looking to. We also don't make them exhaustive. So, if there are other matters to be brought to our attention, we have them open and ask for all matters that industry participants—users, suppliers, retailers—consider to be relevant…we recognise the importance of having the issues to be considered available in advance.
2.50Further, DCCEEW informed the committee that there ‘will absolutely be terms of reference for the review’. Mr Simon Duggan clarified that with the code only recently coming into effect, more evidence and data is required for a terms of reference to be constructed that is meaningful (in terms of market conditions). In light of these factors, MrDuggan outlined that the second half of 2024 would provide an opportunity for broad advice to be given to the government on what the terms of reference would be.
Consultation on the design of the code
2.51As outlined in Chapter 1, two rounds of consultations were undertaken with Treasury, DCCEEW and DISR in relation to the design of the mandatory code. The first round of consultations undertaken between December 2022 and January 2023 received over 60 submissions. The second round of consultations undertaken by DCCEEW between April and May 2023 included 27 information sessions with over 140 participants providing feedback on the objectives of the code and how it would be applied in practice. The sessions also gave participants an opportunity to give input and seek clarification on the code’s design.
2.52While stakeholders such as AFMA raised concerns with the consultation process, suggesting that it was limited, a majority of inquiry participants acknowledged the positive outcomes to the design of the code as a result of engagement with stakeholders.
2.53For example, Woodside Energy submitted that ‘the engagement on the Code was constructive, and ultimately addressed a number of issues raised by the upstream producers which otherwise would have prevented a functioning market’.
2.54While Senex noted its concern that no consultation processes were undertaken prior to the intervention in the market in December 2022, it highlighted its active participation in the consultation processes around the code. Of note, Senex recognised ‘the substantial improvements that have been made’ as a result of stakeholder engagement, which it believes has ‘moderated the most severe effects of the initial proposal’:
In particular, the shift away from a price cap and binding arbitration model towards a price anchor and supply commitments from producers is expected to enable new investment in gas development in the short term.
2.55APPEA informed the committee of its experience and satisfaction with the consultation process and were of the strong view, even despite the concerns it has raised, that the code should move forward to provide certainty:
As an industry, we have engaged constructively with governments throughout this process, including with the ACCC and the departments. We appreciate that the government has taken on board some of the industry's concerns relating to some of the original proposals in the code. We are still working with the government. Now there's been a transitional period, we're still seeking clarification on a number of issues, but there has been a lot of consultation over recent months to ensure that there's clarity around how the code will operate in practice.
…
We urgently need new gas supply in the market so we [can] provide the reliable and essential energy needed by Australian households and industry. Again, while we see that the code is far from perfect, we think that it provides a framework that can allow projects to move forward.
2.56In summarising the consultation processes undertaken for the schedule, DCCEEW, DISR and the ACCC highlighted that the final design of the code ‘reflects extensive and constructive engagement with gas producers, gas users and retailers during the first half of 2023’ and incorporates the ACCC’s advice to government in December 2022. Specifically, the ACCC:
Recommended a targeted interim emergency price requirement and a strengthened and mandated gas code.
Suggested that the introduction of the code would help address bargaining power imbalances between producers and buyers, as the code would set minimum standards to support producers and buyers to arrive at agreements on reasonable terms, including price.
Viewed that the Temporary Price Order and the price anchor in the code would put downward pressure on prices and lead to a more sustainable domestic gas market.
Committee view
2.57The committee welcomes the Gas Market Code of Conduct as a required regulation to support stability and certainty in the domestic Australian gas market. The Gas Market Code will deliver a secure supply of gas at reasonable prices to domestic users.
2.58The committee is assured that the Gas Market Code is needed now, and into the future, to stabilise both prices and availability of gas to the domestic market as well as improve transparency and address the bargaining power imbalance between producers and users.
2.59In evidence provided to the committee during the public hearing, witnesses confirmed the conduct of some gas market participants had resulted in poor market outcomes and unreasonable prices. The committee acknowledges concerns raised from inquiry participants that efforts to address and reduce these issues through a voluntary code of conduct have been ineffective.
2.60The committee notes evidence from the Australian Competition and Consumer Commission that the temporary price cap issued by the government in December 2022, at $12 per GJ, has successfully decreased pressure on gas prices.
2.61The committee further notes the effects of the Gas Code of Conduct are expected to flow into the retail sector and improve retail prices as contracts become due.
2.62The committee is strongly of the view that the mandatory and enforceable Gas Code of Conduct is required and will ensure that market participants work cooperatively and in good faith. Further, it will improve transparency and operations of the market, drag down prices to be reasonable and improve the clarity of domestic gas supply.
2.63The committee is of the view that the mandatory code will compliment and support government and industry initiatives to reduce emissions and increase renewable energy generation. In particular, the committee notes evidence from stakeholders that the Gas Market Code will allow industry to expand and will improve the ability to produce the materials required for Australia’s energy transition at a more reasonable cost.
2.64The committee notes evidence that the code does not encourage increased reliance on, or greater use of, gas. The Gas Market Code works in conjunction with other government initiatives to reduce long-term reliance on fossil fuels by legislating targets and promoting renewable energy. In parallel to these efforts, the objective of the code is to ensure enough gas is available for the domestic market at reasonable prices.
2.65The committee is supportive of the ongoing work of the Australian Competition and Consumer Commission to monitor prices and conduct in the gas market.
2.66The committee is assured that the work the government had undertaken in conjunction with industry participants to develop the code has been effective. Further, the committee is confident that consultation with industry has resulted in a code that is supported and will maintain Australia as an attractive jurisdiction for investment and development.
2.67The committee notes evidence that the exemption framework will assist gas users to access the gas they need at reasonable prices, consistent with the intention of the code to increase domestic gas supply. Overall, industry participants were clear in their evidence that they wish to see the code continue.
2.68The committee is of the strong view that the Gas Market Code of Conduct should stand as promulgated, and notes evidence from gas users and producers supporting this view. The code should not be disallowed as doing so would undermine stability and certainty for market participants, negatively impact gas prices and domestic supply, and importantly, would reduce Australia’s ability to provide the energy mix required to achieve the target of Net Zero by 2050.
2.69The committee recommends that the Regulations stand as promulgated.
Senator Jess Walsh
Chair
Senator for Victoria