Factbox: Australia steps up action to drive down energy prices

Posco International

12/12/2022 07:27

MELBOURNE, Dec 12 (Reuters) - Australia's Labor
government promised when it was elected in May that power prices
would fall by 2025 spurred by a rapid expansion of renewable
energy, even as industry experts said power prices would head
higher.
    Instead in October, the government forecast power prices
would rise by 56% and gas prices by 44% over the two years to
2024, reflecting soaring global coal and gas prices in the
fallout from Russia's invasion of Ukraine.
    Looking to beef up gas supply and lower coal, gas, and power
prices, the government has taken extraordinary steps over the
past six months. 
    Price caps
    In December, the government announced it would cap
uncontracted gas prices at A$12 per gigajoule (GJ) and cap coal
prices for power producers at A$125  ($84.63) per tonne for one
year.
    Producers potentially exposed to the price cap include
ExxonMobil Corp  XOM.N , Shell Plc  SHEL.L , Origin Energy
 ORG.AX , Woodside Energy Group  WDS.AX , Santos Ltd  STO.AX 
and South Korean steel giant POSCO International Corp's
 04750.KS  Senex Energy.
    Coal producers that will be affected include Glencore Plc
 GLEN.L , Banpu Resources Australia, a unit of Thailand's Banpu
PCL  BANPU.BK , Coronado Global Resources  CRN.AX  and Peabody
Corp  BTU.N .
    The government also proposed a "reasonable price" regime for
gas after the price cap expires. That would require gas
producers to set a price based on their production cost plus a
reasonable rate of return, if they are unable to negotiate a
price with a buyer. 
    No timeframe was put on the new regime that sparked a gas
industry furore.
    Export curbs trigger
    In September, the government extended and revised the
Australian Domestic Gas Security Mechanism (ADGSM), first put in
place in 2017. 
    The mechanism will now be in place until 2030, and calls for
the government to review quarterly whether the domestic market
faces a gas shortfall. If it finds there will be a shortfall, it
will issue export permits to the three east coast liquefied
natural gas (LNG) exporters - APLNG run by ConocoPhillips
 COP.N , GLNG run by Santos and QCLNG run by Shell - limiting
their uncontracted exports.
    The export permits wil be determined by how much gas is
needed to fill a shortfall, with each LNG exporter to contribute
equally towards filling the gap.
    Supply agreement
    In September, the three east coast LNG exporters reached a 
a so-called Heads of Agreement with the government, in effect to
the end of 2025, committing to offer any uncontracted gas to the
domestic market at competitive prices before offering it to
offshore buyers.
    At the same time, APLNG, GLNG and QCLNG agreed to offer an
extra 157 petajoules (PJ) of gas to the domestic market for next
year, following a warning by the competition watchdog that the
east coast market faced a shortfall of 56 PJ of gas in 2023. 
    Power crunch
    In June the country was hit by a power crunch, as global
energy markets rocketed after Russia's invasion of Ukraine,
coal-fired power plants suffered outages, local coal supply was
disrupted, and demand for gas in generation shot up just as
homes needed gas for heating.
    The government and energy market operator took unprecedented
 steps to cap gas and power prices and suspend the National
Electricity Market, narrowly averting blackouts.
($1 = 1.4771 Australian dollars)
 (Compiled by Sonali Paul; Editing by Christian Schmollinger)
 ((Sonali.Paul@thomsonreuters.com; +61 407 119 523;))