Albanese government must find a way to force gas prices down

Bringing gas prices down in the eastern part of the country is vital in reducing the cost pressures many businesses and households are confronting. Coal and gas prices are the main drivers of soaring electricity bills.

Dealing with gas prices is also important for reinvigorating Australian manufacturing, one of Anthony Albanese's election promises.

And, despite the opposition to gas from some environmental critics, it has a necessary role in the transition to clean energy and thus to the government delivering its ambitious climate policy.

Shaping up as an outspoken protagonist in the current "gas wars", Industry Minister Ed Husic this week launched a barrage of criticism at the producers.

Husic accused the companies of acting in a way that "would make a locust swarm proud", bent on an "absolutely rabid pursuit of profit above all else".

They are "sucking up an Australian resource and selling it at phenomenal prices overseas and doing so in such a way that is putting pressure on manufacturers and households in this country," he told Sky.

Husic is one of four ministers on the frontline of trying to bring down local prices.

Treasurer Jim Chalmers highlighted the issue when he told a Tuesday news conference power prices were expected to play "a bigger and bigger part" in Australia's inflation problem in coming months.

Chalmers said he, Husic, Resources Minister Madeleine King and Energy Minister Chris Bowen were working on what could be done to get gas prices down, declaring action would be taken.

But to what extent all four are on the same page is a moot point.

Traditionally, resources ministers are more sympathetic to producers and industry ministers speak up for the users.

Thus Martin Ferguson, when resources minister in the Rudd government, opposed a Queensland plan for a gas "reservation" scheme. (Ferguson, who eventually went into the industry, later changed his mind.)

Such a scheme already operated in Western Australia. The WA policy requires LNG producers to reserve a certain proportion (15 per cent) of their production for domestic use. The state is not part of the eastern states' national energy market and has some of the lowest gas prices in the OECD.

One wrinkle in the present ministerial mix is that King is from WA. She is charged with trying to deal with a problem that her home state, thanks to its policy setting, doesn't have.

King recently negotiated a new so-called "heads of agreement" with the gas producers. It was a light-touch deal.

The companies undertook to provide enough gas in the domestic market to avoid any supply problem.

But the rub is that the price at which they supply it won't be lower than the international price. And that is very high and rising, driven by the energy crisis in Europe. The international parity price has increased from about $10 a gigajoule a year ago to about $60 for 2023.

The national secretary of the Australian Workers' Union, Daniel Walton, this week was scathing about King's "dud" agreement.

The government had a choice, Walton said. "Defend the insane super profits gas exporters are making from the Ukraine war or defend the future of Australian manufacturing and the hundreds of thousands of jobs it supports."

The government has declined to pull the "trigger" that the Turnbull administration set up to give some potential control over gas supplies in the event of export demands leaving the local market short.

This allows a government to order the companies to set aside a certain amount of gas for domestic use. But it doesn't go to price, which is the present problem.

The government's challenge is how to separate the domestic market from the international price. But the options available to it are limited, and some involve hurdles too high to surmount.

It has a review of the trigger under way. The mechanism could be made more flexible and fit-for-purpose by removing the long lead time required to activate it and by extending it to include price.

Another course is to strengthen the "code of conduct" that regulates standards in the marketing of gas to industrial customers. Husic said the government would examine having price factored into that code.

The government has ultimate power in that it controls export licences, but to even contemplate using that threat against recalcitrants would send the worst of messages to investors.

A bold option would be to impose a super profits tax on the companies; an alternative would be changing the existing petroleum resource rent tax.

But they run into the same brick wall that suggestions of recalibrating the stage 3 tax cuts did - the tax road would break an election commitment. Chalmers has firmly ruled out a super profits tax.

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An amended code of conduct and a revamped trigger would seem the easiest options. Whatever is done needs to be quick and effective, but there are no guarantees. The issue also poses a test for discipline within the government, given contending ministerial views.

Husic said on Wednesday: "We cannot be more clear: if these gas companies think that this is the end of the story and the heads of agreement is all done and dusted, they've got another [think] coming". Strong words.

On Friday, Albanese and Husic appeared at a joint news conference after a factory visit. The verbal dial was turned down somewhat but Albanese's message was firm - the government wanted gas delivered at an "appropriate" price that "doesn't see businesses put under undue pressure". The PM will be judged by what happens to those power bills.