Australia’s Natural Gas Price Cap Could Do More Harm Than Good

A price cap on natural gas for the domestic Australian market could make matters worse instead of better, energy major Woodside has warned.

The cap, for gas and coal, was announced by the Prime Minister earlier this month as a means of mitigating the effects of the international tightening of gas supplies that has led to higher prices.

"Extraordinary times call for extraordinary measures, and we know, with the Russian invasion of Ukraine, what we've seen is a massive increase in global energy prices," Anthony Albanese told media.

The energy industry was quick to slam the measures, which would see gas prices capped at $8.15 (A$12) per gigajoule and coal prices capped at $85 (A$125) per ton, with the cap in effect for a year.

According to companies from the sector, a price cap would discourage investments in new production capacity and, as Woodside said this week, create more uncertainty.

“A policy of such significance, proposed without any meaningful consultation with industry, creates an environment of uncertainty that will result in investment activity dropping across energy markets. This will make solving the underlying structural problems in the energy market harder, not easier,” the company said in a statement.

Woodside then went on to call on the Albanese government to reconsider its intervention in local gas markets and “bring energy companies, retailers, manufacturers, and infrastructure owners together to properly engage on a solution.”

Earlier this week, the local arm of Exxon put it more bluntly: "This reckless free market intervention by the government will divert investment away from Australia to other nations that support fiscal stability and free markets," a spokesperson for Esso Australia said, as quoted by Reuters.

Meanwhile, Albanese has shrugged off criticism from the energy industry, saying that "This is jumping at shadows. We've come up with measures which are responsible, that won't have a negative impact on investment."

Even so, the PM has agreed to meet with energy companies to discuss the government’s measures for tackling the crisis.

By Irina Slav for Oilprice.com

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