Labor’s energy market intervention poses a number of political risks

recurring problem

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The government has tried to reassure the resource sector, assuring that its intervention is temporary and will only last for the next 12 months.

However, market analysts are warning that the global energy crisis and resulting high prices caused by Russia’s invasion of Ukraine will linger for years to come.

It’s possible that the prospect of high electricity prices this time next year will prompt calls for another round of price caps, sparking renewed outrage in the commodities sector.

Mining tax brand two

Perhaps the federal government anticipates the potential for longer-term price controls and finalizes a binding code of conduct for gas producers. This would give the government the power to ensure “reasonable” gas contract prices beyond the 12 months, a price cap of $12 per gigajoule.

The move sparked an angry outburst from Santos boss Kevin Gallagher, who claimed that “these Soviet-style policies are a form of nationalization.”

Prime Minister Anthony Albanese has denied the sector’s allegations, saying the interventions would not hamper investment. He argued that 96 percent of gas contracts in 2021 are below the $12 per gigajoule cap.

Nonetheless, coal and gas companies have threatened to launch another multi-million dollar ad campaign similar to their 2010 effort credited with getting rid of the Rudd government’s pension tax.

nuisance to neighbors

Some of Australia’s key trading partners and Pacific allies, Japan and Korea, have already expressed fears that government intervention will disrupt key Australian gas supply contracts.

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Korea and Japan are big buyers of Australia’s gas exports, and both nations rely on imported energy as they produce very little of their own supplies. Both countries have been reassured by the government that their long-term contracts will not be disrupted.

But experts like Graeme Bethune of Adelaide-based energy consultancy EnergyQuest have questioned whether the industry will invest enough to create new supplies to replace the impending shortages, especially if market interventions stretch beyond the coming 12 months.

When shortages arise, the federal government may be forced to use its powers under so-called “gas trigger” legislation to divert supply from international treaties to keep the lights on at home. This would no doubt provoke an angry reaction from Japan and Korea, which would be forced to seek alternative energy sources.

Break through the noise of federal politics with news, perspective and expert analysis from Jacqueline Maley. Subscribers can sign up for our weekly Inside Politics newsletter here.

https://www.smh.com.au/politics/federal/labor-s-energy-market-intervention-carries-a-series-of-political-risks-20221226-p5c8ud.html?ref=rss&utm_medium=rss&utm_source=rss_politics_federal Labor’s energy market intervention poses a number of political risks

Callan Tansill

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