Australia to cap prices of coal, gas to drive down energy bills
AUSTRALIA will cap its coal and gas prices for a year in a bid to shave utility bills for households and businesses hit by soaring costs because of the Russia-Ukraine conflict, said Prime Minister Anthony Albanese on Friday (Dec 9).
Gas prices will be capped at A$12 (S$10.97) per gigajoule (GJ), while the limit for coal will be A$125 per tonne for 12 months, with the government supporting coal producers whose costs exceed that figure, he said.
He told reporters after a national cabinet meeting with state leaders: “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.”
The government also agreed to provide assistance of up to A$1.5 billion to homes and small businesses, starting from the second quarter of 2023.
The gas price cap will apply to new wholesale gas sales by eastern-coast producers. At A$12, it is less than half the average short-term gas price of A$26 per GJ in the third quarter, based on data from research group EnergyQuest.
Meanwhile, the coal price cap will apply to coal used in power generation. The cap of A$125 is about half the average selling price of A$249 per tonne that energy firm Banpu achieved for its Australian coal in the third quarter.
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Gas producers urged the government not to impose the price cap, saying that it would deter future investment in supply, which would be key to driving down prices in the long run. They added it could damage Australia’s reputation with foreign investors.
Producers that could be hit by the gas price cap include ExxonMobil, Shell, Origin Energy, Woodside Energy Group, Santos and Senex Energy, which is owned by South Korean steel giant Posco International.
A Woodside Energy Group spokesperson said: “The uncertainty caused by the federal government’s plan to impose a price cap in the eastern Australian gas market has already destroyed the confidence both buyers and sellers need in order to complete the transactions that will ensure energy supplies to households and businesses.”
Coal producers that will be affected include Glencore, Banpu Resources Australia, Coronado Global Resources and Peabody Corporation. The list includes coal suppliers of power plants in New South Wales and Queensland.
Coal producers declined to comment, opting to wait for further details on how the price cap would work.
The Australian Industry Group welcomed the price caps, but said they were not the best solution. Its chairman, Innes Willox, said: “They will be messy to implement... but they look likely to be very helpful in dampening the immediate economic pain of this global energy crisis.”
However, power producers represented by the Australian Energy Council said that it was unclear whether electricity bills would fall anytime soon. This is because energy retailers and generators who hedge their risks have already settled their contracts for the next 12 months on the basis of higher prices.
Australian Energy Council chief executive Sarah McNamara said: “If more lower-priced fuel is available, over time those savings may lead to lower wholesale electricity prices, but that will take time to flow through to end-users.” REUTERS
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