As the federal government weighs its options for regulating the gas market to bring down soaring power prices, exporters of Australian gas, riding high on record profits, have fired a warning shot.
Treasurer Jim Chalmers confirmed on Sunday the government was considering all options, including capping soaring gas prices, after the budget forecast annual power bill increases of 20 per cent.
Santos CEO Kevin Gallagher, who this month announced a record $9.3 billion profit and a near-doubling of company cash flow, warned intervention could set the country on a path toward an Argentine-style economic crisis.
“You only have to look at countries like Argentina to see the impacts of market intervention and price controls – they never work,” he told Nine Entertainment Company.
“Increasing regulatory burden and threat of intervention will take Australia rapidly down the Argentinian road.”
Inflation in that country reached as high as 100 per cent while mass shortages have thrown millions into poverty.
Mr Gallagher, who was paid a controversial $6 million bonus last year, said government intervention would backfire and raise prices and lower supply – outcomes “that all hurt the most vulnerable people in society”.
“The only way to support the supply of Australian domestic gas is to let the private sector get on with the job of investing in new gas supply,” he said.
Shadow minister for employment and workplace relations Michaelia Cash similarly dismissed capping prices as a “thought bubble” on Sunday.
“All a price cap will do is actually discourage players from bringing on supply,” she said.
The chief executive of the Dutch oil giant Shell, Ben van Beurden, took a different view last week when discussing a doubling in third-quarter profits, even months after the UK imposed an energy profits levy.
“We should be prepared and accept that also our industry will be looked at for raising taxes in order to fund the transfers to those who need it most in these very difficult times,” he said. “We have to embrace it.”
Gas prices influence electricity prices and have surged to double their previous levels following Russia’s invasion of Ukraine and the consequent shutting off of the country’s supply to Europe.
Rod Sims, the former head of the ACCC, says the government did not need more than the threat of cutting off companies’ access to lucrative export markets to force prices down to pre-war levels.
Measures included in last week’s budget will beef up the voluntary code of conduct governing gas supply via greater monitoring; Dr Chalmers said the government intended to make its provisions mandatory.
The government will also more frequently be able to pull a “trigger” that would limit the export of gas to ensure adequate local supply.
Treasurer Jim Chalmers said on Sunday he was hopeful regulation would provide a means to lower prices but said the government had reserved all options.
“We are contemplating the kinds of steps that governments wouldn’t have contemplated a year or two ago,” he said.
The regulatory measures drew a protest from the lobby group representing gas exporters. It made a point of noting the revenue the government makes from taxing the industry.
“That contribution is at risk when there is uncertainty and changing policy settings that act as a brake on new investment,” Australian Petroleum Production and Exploration Association CEO Samantha McCulloch said.
Analysis by the Australia Institute found that despite windfall profit increases of between $25 to $40 billion, gas companies were only shelling out an extra $1 billion in tax.
In Western Australia, where the government limits exports to keep prices low, power bills are expected to jump by little more than two per cent next year.
WA Premier Mark McGowan says other states should follow their lead and noted this week that the reservation policy was taken despite warnings gas exploration would collapse – warnings he says did not come to pass.
At a meeting of state and territory energy ministers on Friday New South Wales Treasurer Matt Kean argued for direct cost-of-living support and said families and businesses should not have to fend for themselves.
Dr Chalmers has said the government favours empowering regulators over providing rebates to households.
Greens leader Adam Bandt said big gas corporations are making “giant windfall profits” and proposed that some of those funds should be directed to energy relief.
“We should tax them and use the money to help people and businesses with their energy bills,” Mr Bandt said.
