Australia on Wednesday proposed to extend a price cap on natural gas until at least mid-2025 but relax the rule for big producers if they agree on domestic supply commitments and small producers who pump gas only for the local market.

The latest plan marks a backdown by the government, which last year provoked alarm in the gas industry with a long-term proposal to require east coast gas producers to set prices based on their production costs plus a “reasonable” rate of return.

That plan came on top of a one-year price cap of A$12 ($8) per gigajoule approved in December on new wholesale gas sales by east coast producers to ease pressure on households and small businesses hit by soaring energy costs following Russia’s invasion of Ukraine.

The government has now proposed to extend the price cap by at least 18 months to July 1, 2025, when it will be reviewed. Short-term east coast gas prices averaged nearly A$18/GJ in the fourth quarter of 2022, according to data from research group EnergyQuest.

An exemption would be allowed if producers make court-enforceable supply commitments and also submissions to the competition regulator as the government released the mandatory gas code of conduct for final consultation.

“The Gas Code will minimise the risk of supply shortfalls, deliver Australian gas at reasonable prices for Australian families and industry, and provide certainty for our valued trading partners,” Energy Minister Chris Bowen said in a statement.

The price cap was met with fierce opposition from the gas industry when announced but was supported by gas-dependent manufacturers and the Australian Workers’ Union. Gas producers and analysts had warned a “reasonable pricing” regime would deter development of new gas supply.

Comments on the reasonable pricing proposals are due by May 12.
Source: Reuters (Reporting by Renju Jose in Sydney; Editing by Sonali Paul)