Interview with David Lipson, ABC AM

David Lipson
Gas market, energy prices

DAVID LIPSON: Australia’s gas producers and the Federal Government have engaged in a high-stakes game of bluff with energy consumers stuck in the middle. Shell and Woodside have suspended talks with buyers to supply new gas into Australia’s east coast in a move that could drive up energy prices. It’s all because of the Government’s intervention in the market, which is designed to do precisely the opposite. It could make for a fiery meeting between the Prime Minister and gas companies before tomorrow’s parliamentary vote on the policy. Madeleine King is the Resources Minister and she joined me earlier. 

Minister, thanks for your time. This is all starting to look like a game of political chicken. Are the threats from gas producers making the Government think twice about its plans? 

MADELEINE KING: Well, the Government has clear plans, and we have a clear intention to reduce the energy prices that consumers and manufacturers and industry are paying across the east coast, and we need to bring those prices down so that we don’t practically excise a whole part of the manufacturing industry from the country. That would be an unacceptable outcome. I’ve seen the reports, and, in fact, they’ve been in touch with me, the companies that are halting their expression-of-interest process, and it’s not unreasonable in the circumstances because we, as a government, have introduced a significant change and we accept that. It is a response to a crisis situation. But I will be meeting with the three LNG exporters later this week, and that was a meeting set up long ago as part of the heads of agreement. So, we’ll talk through what they intend to do and what they have to look at to make sure that the expression-of-interest process meets the requirements of the regulations we intend to bring into force.

DAVID LIPSON: You say it’s not unreasonable to pause these agreements that have been made. Can you give us an outline of what the status is, for example, of Shell’s heads of agreement that you helped broker? Is it possibly going to continue or not? 

MADELEINE KING: I do of course hope it continues and, as I said, I will be speaking with all three of the LNG operators on Thursday, which is a matter of course out of that agreement. It’s a voluntary undertaking, the heads of agreement, and the three producers have committed to provide 157 petajoules of gas, and my understanding is much of that is already contracted for this year and that’s a very positive thing and it’s a great outcome for the east coast gas market. But what is remaining is part of the expression-of-interest process and we will talk through how that might have to change because of our regulations and their concerns about it. But it’s not a halt. They’ve been very clear. They’re just bringing it to a temporary stop while they understand what we’re proposing to implement, and I think that’s reasonable. They hold a seat at the table with the heads of agreement because they’re party to it and they voluntarily entered into it.

DAVID LIPSON: The thing that they’ve been most upset about is the reasonable price mechanism, which would be a permanent intervention in the market. Is there any scope for that to be amended or even removed from the Government’s proposal? 

MADELEINE KING: Well, it’s still a part of ongoing consultation up until early February, so we want gas producers and customers to act in good faith and negotiate fair and equitable commercial contracts, and that’s what that code is about. The reasonable price mechanism is part of negotiation or arbitration provisions in the code of conduct, and it’s really important to realise that the point at which that arbitration on a reasonable price comes into play is the subject of this consultation through to February. And that consultation will also consider what reasonable will be, and, equally, it applies to both producers and purchasers, so we expect the producers of gas and the sellers of gas to act reasonably, but also purchasers will have to act reasonably because this mechanism won’t be a cure-all for inadequate planning or poor management. 

So, this applies to all parts of the market, producers and consumers and manufacturers that purchase this gas, but is an arbitration and mediation provision. So, I have no doubt that negotiations will go on sensibly, but when people start acting unreasonably, they will have recourse to an arbitration provision.

DAVID LIPSON: The Prime Minister says his Government will consider a national gas reservation policy as a longer-term solution. Do you think that’s a better option? 

MADELEINE KING: Well, I think given the extraordinary state of the market at the moment, we have to look at all options and I note some states have enacted their own already. We, of course, reflect on Western Australia’s reservation policy as a great success, but also Queensland have a priority reservation policy as well, and other states have spoken about this, but it does require a state-based gas supply, so that’s part of the complication for those state-based reservations. But it is certainly something we can look into. It is complicated to retrofit a reservation policy after we have had an LNG export industry in place for a number of years, but that doesn’t mean it’s impossible and we’ll look at this.

DAVID LIPSON: Does gas have a future in Australia?

MADELEINE KING: Gas absolutely has a future in Australia. It has a future because we need gas for power consumption but also for industry processing. The gas industry itself has been very proactive in seeking to change its operations to meet net-zero targets. They in fact committed to those carbon emissions plans well before the Commonwealth of Australia did, so we do have to acknowledge the work they’re doing. It’s needed for our industry, for our consumers, but equally Australian gas is very important to regional energy security, and we will continue to be that reliable supplier of energy to our regional neighbours.

DAVID LIPSON: Minister, thanks for your time. 

MADELEINE KING: Thanks very much, David.

DAVID LIPSON: That’s Madeleine King, the Federal Minister for Resources.