Shell unlocks first gas supplies under new government price caps

Global energy giant Shell has sealed its first round of east-coast gas supply deals since the Albanese government introduced emergency price caps, telling customers it has opted to prioritise supplies to retailers rather than to industrial users directly.

Shell, one of Queensland’s three big producers of liquefied natural gas (LNG), this year ended an industry-wide freeze on making new gas supply offers into the stretched domestic market following the introduction of federal laws capping the price of uncontracted gas at $12 a gigajoule for 12 months.

Shell has resumed wholesale gas supply deals following a suspension provoked by the Albanese government’s price caps.
Shell has resumed wholesale gas supply deals following a suspension provoked by the Albanese government’s price caps.Credit:Bloomberg

On Monday, Shell began telling customers that it had finalised its sales talks, and had decided to prioritise sending gas to retailers that could then on-sell it to smaller commercial and industrial gas users in a bid to boost supply and competition where it is needed most.

“Shell confirms that we have concluded the assessment of submissions for our revised expression-of-interest process,” it said in a statement.

Under the new deals, Shell’s Queensland-based gas division, QGC, will make an additional eight petajoules of wholesale gas supply available for 2023. It comes as LNG producers are being pressured to do more to supply the local market since the Australian Competition and Consumer Commission (ACCC) renewed warnings of possible 30-petajoule shortages this year, noting that LNG exporters had ample supplies to avert a domestic shortfall, but were yet to commit enough under “firm contracts” to local buyers.

However, Shell’s decision risks disappointing smaller manufacturing companies which depend on natural gas for energy or as a raw material in their factories’ processes. Some had been seeking to source supplies directly from producers to gain urgent relief from prices that have skyrocketed as high as nearly $40 a gigajoule.

The government’s price cap only applies to uncontracted wholesale gas this year, meaning smaller firms that source gas via retailers have not been able to access cheaper gas immediately.

After a spate of local coal-fired power station breakdowns and the war in Ukraine caused wholesale energy prices to spike last year, the Albanese government in December introduced emergency 12-month coal and gas price caps to reduce the flow-on impact to household bills.

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It is also finalising a mandatory code of conduct for the gas sector, which will contain a longer-term requirement that future gas contracts are struck at prices that reflect production costs plus a margin allowing for a “reasonable” rate of return.

Gas users, including large manufacturers, have strongly supported the government’s efforts to tame what they say are “unreasonably and unsustainably” high prices that have risen disproportionately to exploration and production expenses.

Before the government decided to intervene, east-coast gas bills had been forecast to surge by more than 40 per cent by 2024, threatening to push prices to potentially unaffordable levels for many homes and businesses

However, east-coast gas producers have warned the “reasonable” pricing controls ignore the sector’s considerable exploration risks and will deter vital investments in new projects needed to offset declining fields in the coming years and keep a lid on future price hikes.

Some gas companies, including Shell, halted offers amid concerns about possible grey areas in the rules that could have led to unintended breaches and attracted hefty penalties.

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Source: Thanks smh.com