Australian Gas Retailers Unable to Secure Supply Due to Government’s Gas Price Cap

A kitchen gas stove burner at a residential property in Melbourne, Australia, on June 16, 2022. Joel Carrett/AAP Image

Several Australian gas retailers have reported supply issues following the government’s implementation of the gas price cap, which prompts the consumer watchdog to keep a close eye on gas producers.

In a recent gas market development, AGL–the second-largest energy retailer in Australia, confirmed that the company has been unable to secure an incremental contract supply of gas for 2023.

As a result, the energy giant has to stop taking in new commercial and industrial customers.

“AGL understands the importance of securing long-term affordable gas supplies for its commercial and industrial customers,” an AGL spokesperson told The Epoch Times.

“AGL’s commercial and industrial customers who are not contracted for the period from Jan. 1, 2023 have been placed onto default tariffs (or remain on default tariffs).”

The default tariffs are default prices that retailers offer to customers who have not signed up for any specific energy plan or market contract.

Due to market price fluctuation, these customers generally have to pay higher prices for energy than those locked in a contract.

While AGL currently has to turn down new businesses and manufacturers looking for gas supply, new residential customers can still sign up with the company.

A general view of Coal Seam Gas wells in the Pilliga Forest in Narrabri, Australia, on Feb. 6, 2021. Brook Mitchell/Getty Images

Meanwhile, The Australian reported that smaller energy retailers, including Discover Energy and Powershop, had also stopped offering gas to new customers.

In addition, OVO Energy, a new market entrant from the UK, said it had postponed the launch of a gas retail offer after the Labor government intervened in the market.

“We were aiming to launch early this year, but now we are sitting back and waiting to see what happens with the proposed reforms before moving forward with gas,” Australian CEO Mark Yemm said.

“No counterparty is currently willing to sell at the proposed $12 (US$8.36) rate, and we’re not even sure how it'll work in practice when the reforms come into place since there’s very little that seems to be actual concrete around it right now.”

The Gas Price Cap

This comes after the Australian Labor government introduced a gas price cap on Dec. 23, 2022, to tackle soaring domestic energy prices.

Under the measure, the government limits wholesale gas prices produced by east coast gas companies to a maximum of $12 per gigajoule for 12 months.

The temporary policy will be reviewed six months after its implementation.

The government expected the price cap to reduce gas price increases by 16 percent in the 2023-2024 financial year.

However, gas companies and energy experts have raised concerns that the price cap will hurt domestic energy supplies on the country’s east coast.

Credit Suisse energy analysis Saul Kavonic said the price cap policy was a mistake from the get-go as it left the gas market in a state of paralysis.

“No one is really able to do anything. Producers are trying to get simple answers to basic questions about how the policy works,” he said.

“They are not able to actually deliver any contracts to the market.”

Kavonic said the situation would lead to small retailers exiting the market as they could not get any gas or had to pay much higher prices than before.

“It‘ll concentrate the power in the hands of the like of AGL and Origin, and they’ll pump up the prices, and the end users will be suffering,” he said.

Government’s Response

While Treasurer Jim Chalmers acknowledged that gas retailers had difficulty negotiating new supply contracts with gas suppliers, he stood firm on the government’s policy.

“We expect the gas producers to act promptly to implement the temporary price cap,” he told reporters in Canberra.

Treasurer Jim Chalmers at a press conference at Parliament House in Canberra, Australia, on July 20, 2022. AAP Image/Mick Tsikas

The treasurer also noted that the Australian Competition and Consumer Commission was monitoring gas producers to ensure that they acted consistently with the price cap policy and other relevant regulations.

Speaking about retailers’ gas supply issue, Liberal MP Dan Tehan said there were always consequences for intervening in the energy market.

Meanwhile, independent Senator Jacqui Lambie said the government’s plan was never going to work.

“Go back to the drawing board, PM. You got it wrong,” she told Sky News.

She also said that the government should come up with a solution that would not restrict the gas supply.

Nevertheless, Chalmers said it was too early to conclude that the price cap was not producing the desired outcome.