Australia to cap prices of coal, gas to drive down energy bills

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  • Gas, coal price caps around 50% below Q3 average prices
  • Gas producers say price caps will backfire
  • Power producers say unclear when bills will fall
  • Coal producers seek more details on price cap

By Sonali Paul

MELBOURNE, Dec 9 (Reuters) – Australia will cap 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 Ukraine conflict, Prime Minister Anthony Albanese said on Friday.

Gas prices will be capped at A$12 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.

“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,” Albanese told reporters after a national cabinet meeting with state leaders.

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 east coast producers. At A$12, it is less than half the average short term gas price of A$26/GJ in the third quarter, according to data from research group EnergyQuest.

The coal price cap will apply to coal used in power generation, the government said. The cap of A$125 is about half the A$249 a tonne average selling price Banpu achieved for its Australian coal in the third quarter.

Gas producers had urged the government not to impose the price cap, saying it would deter future investment in supply, which would be key to driving down prices in the long run, and could damage Australia’s reputation for foreign investors.

Producers that could be hit by the gas price cap include ExxonMobil Corp, Shell Plc, Origin Energy, Woodside Energy Group, Santos Ltd and South Korean steel giant POSCO International Corp’s 04750.KS Senex Energy.

“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,” a Woodside spokesperson said.

Coal producers that will be affected include Glencore Plc , Banpu Resources Australia, a unit of Banpu PCL , Coronado Global Resources and Peabody Corp , which supply coal to power plants in New South Wales and Queensland states.

Coal producers declined to comment until seeing 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.

“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,” Ai Group chief executive Innes Willox said in a statement.

However, power producers, represented by the Australian Energy Council, said it was unclear whether electricity bills will fall anytime soon, 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.

“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,” Australian Energy Council Chief Executive Sarah McNamara said in a statement.

(Reporting by Sonali Paul; Editing by Clarence Fernandez and Sam Holmes)

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