Interview with Hamish Macdonald, ABC Radio National

HAMISH MACDONALD: This is RN Breakfast. A very good morning to you. Despite the government's intentions, there's no end in sight for Australia's sky high gas prices, it seems, as conflict brews over the $12 price cap. Instead, the Commonwealth intervention seems to have resulted in further price hikes for consumers.

Already the retailers are saying that they're facing withheld supply. But Australia's biggest gas producer has told this program this morning, that just isn't the case.

MARK ABBOTSFORD: I can certainly speak from the Woodside standpoint to say wholeheartedly that we are not withholding supply; with every molecule of production that we can put into the marketplace, we are, and I think yes, the comments that have been made by the Minister, I mean prices have been very high over the last six months.

HAMISH MACDONALD: He's referring to Minister Ed Husic there. That's Woodside's Executive Vice President, Trading and Marketing, Mark Abbotsford speaking to RN Breakfast earlier. The Climate Change and Energy Minister, Chris Bowen is with me now. Welcome back to Breakfast.

CHRIS BOWEN: A very good morning to you, Hamish.

HAMISH MACDONALD: Thank you very much. Do you acknowledge at this point that the market intervention is back firing?

CHRIS BOWEN: Oh, no, not at all, Hamish, not at all. On the contrary, what we are seeing is some time, as we always said, for our wholesale cap to flow through to retail prices. Now, in relation to supply, this relates to a fairly small number of customers. Most customers have their gas contracted already for 2023, there's a small number who don't. I'm not dismissing the importance of that for those customers, of course, but in the context of the entire system, this is a small number of customers. Now, the gas companies are…

HAMISH MACDONALD: I just need to pull you up there. You acknowledge, don't you, that customers that are in the market now trying to get new contracts are being offered rates much higher than they were, 30 per cent increase in Queensland, 22 per cent increase in New South Wales, 19 averaged out across the states. That's not what you wanted, is it, presumably?

CHRIS BOWEN: Well, Hamish, I was dealing with the supply issues that you raised, but I'm more than happy to deal with the price issues that you're now raising.

In relation to pricing, as you know, as you'll recall, the Treasury analysis we released in the October budget showed 20 per cent price increases in two years, i.e., two years in a row, 20 per cent and then 20 per cent. Now, that was not acceptable to the government, and we made clear at the time that our intervention would see the first year's price rise come down from 20 to 18, and the second year's price rise come down from 20 to 4 per cent.

Now, that is still to play out, and that analysis holds and is still the case. And, of course, you're going to see, as we always said, a little bit of time for the wholesale price cap to flow through, flow through to retail price caps.

Now, the alternative was just to let the profits rip, to let the war time profits continue, to make Australians pay international prices for Australian gas under Australian soil and Australian water.

Now, we weren't going to let that happen, we haven't let that happen, and the changes that we put into place last year are still flowing through the system.

HAMISH MACDONALD: So just to help everyone listening this morning understand what the problem is right now, the ACCC told us yesterday that there is additional supply available in the market that is not contracted. Woodside has told us this morning that there isn't, as they see it, a supply issue, that everything that they have in the East Coast market is getting out to market. What's your view on that?

CHRIS BOWEN: Well, I thought, Gina Cass Gottlieb in her very normal, professional and highly competent way yesterday, I thought, outlined the issues to you in a very clear way. Now, what she was making clear is that the Parliament passed this legislation very late last year, the ACCC issued guidance, enforcement guidance to the gas companies the other day, the day before yesterday, in relation to how they would enforce that.

The gas companies say that they want to take, have taken some time to just make sure they're complying with that. I accept that on face value, that that is what they are doing, and I thought Gina very clearly outlined to you yesterday that if anybody has any concerns or questions in the gas industry, the ACCC is happy to answer them about how it would be enforced.

So, the gas companies are saying - I heard Woodside - but the gas companies are saying that they need to make sure they comply with the law. I accept that on face value, that that is what they are doing. Now that extra clarity has been provided, the Treasury has also provided extra clarity to APPEA, the peak group, as I understand it, on answering their questions, so that clarity is being provided, in the normal way. I mean Codes of Conduct exist across the economy, I understand this is new for the gas industry, but they exist across the economy in various forms, ACCC, and if the gas companies say that they are simply just making sure they comply, I'm happy at this stage to take that on face value, and the government expects them, as the law provides, to supply gas at reasonable prices to Australian firms and individuals, and I expect that to be the case.

HAMISH MACDONALD: So, if there's a disagreement here, is it in the nuance about any additional gas that's getting into the market and how it's being sold at this point; given that the bulk of contracts between the suppliers and the retailers for this year would have been signed and agreed some time ago?

CHRIS BOWEN: Yeah.

HAMISH MACDONALD: Is this a question about what remaining supplies in the system that is required by the retailers in the market for the East Coast being sold instead of at contracted rates on the spot market? Is that the issue that we're grappling with here?

CHRIS BOWEN: In effect, yes, Hamish, as I said at the very beginning in the interview. Most customers have already contracted their gas for 2023 some time ago. I mean before our laws came into place.

HAMISH MACDONALD: Sure.

CHRIS BOWEN: There are a small number who have not, and they are dealing with this situation. I don't underestimate the importance of that for those small number of consumers.

HAMISH MACDONALD: Sure.

CHRIS BOWEN: But across the board, the vast majority of gas is flowing through the system, as was previously contracted. As I said before, we were expecting 20 per cent rises last calendar year, 20 per cent rises the coming year, the coming year 23/24. Our intervention has stopped that, those rises have come down from 20 per cent to 4 per cent, that analysis holds, and that will play out.

HAMISH MACDONALD: Is there any problem though with the suppliers selling the available supply into the market for this year that there is demand for in the spot market? Is there an issue with that?

CHRIS BOWEN: Well, no, but I simply make this point. I understand gas companies did not support our intervention last year, that's a matter of some public record, and I understand that they were quite happy with the profits they were making, the government was not. We would have seen Australian industries close this year. I would have been coming on your show explaining why Australian industries were closing because they could not afford the international gas price. That was not acceptable to the government. We've acted.

Now, I think, and the gas companies say, and I take them on face value, they will comply with the law, and that is our clear expectation, and our clear expectation of their behaviour, and I have no reason at this point to disbelieve that that is how they will behave.

HAMISH MACDONALD: You, as an opposition went to the election promising to reduce energy bills for households by $275. Do you accept now that that promise is broken, it's not achievable?

CHRIS BOWEN: Well, hang on, Hamish. Let's just not sprout Liberal Party talking points here, Hamish, with respect. We said that if we increase our renewable energy supply because renewable energy is the cheapest form of energy, that by 2025 that will reduce power prices.

Now, yes, that was modelling in 2021, done about 2025. We're now in 2023, we're dealing with a completely separate set of issues here in relation to the elevated international gas and coal prices caused by the war in Ukraine, which every country in the world is dealing with.

Now, the Liberals like to conflate somehow that somehow moving to renewable energy leads to more expensive energy. Their answer is nuclear energy, which is the most expensive form of energy. We respectfully disagree with that analysis. So, we are dealing with two different issues, we're dealing with the elevated…

HAMISH MACDONALD: Anyone that's listening this morning that might be expecting their power prices to go down shouldn't really be expecting that, should they?

CHRIS BOWEN: Well, and we’ve been very upfront that our intervention was not about bringing prices down so much, it was about ensuring that the increases were more in line with Australian expectations, and the more standard increases that you would expect, that they would not be driven by elevated profits off the back of a war. Now, that was just not acceptable to the Australian Government, and I don't think acceptable to the Australian people, and not acceptable clearly to the Australian Parliament, because our legislation passed. Again, it wasn't an intervention we contemplated lightly, if anything, we were criticised for taking too long.

I remember coming on this show with PK explaining why we were taking our time to work it through because we would not be intervening in any sort of haphazard fashion, we would be thinking about the implications very carefully and consulting, and that's what we did, and that continues to be the case. And as I said, Hamish, we've been very clear that our intervention in intervening in relation to the wholesale market will take some time to flow through, but that is exactly as we would expect, and I would expect and hope that gas companies will simply just now comply with the law as good corporate citizens.

HAMISH MACDONALD: So, for anyone though that is getting higher bills or is going to have to pay more for their energy bills, this was part of the plan in introducing the cap?

CHRIS BOWEN: Well, we were very - again, Hamish, let's not put words in each other's mouths, with respect. What we said was we were expecting a 20 per cent increase in 2022/23, and then a 20 per cent increase in 23/24. That was what the Treasury analysis, we put upfront in the budget said, and then we said that that's not acceptable to us, the first year's increase is built into the system, and the second year's increase in effect we can deal with.

Now, the alternative was to do what my predecessor, Angus Taylor did, and hide the increases. I mean he changed the law so that energy price increases were kept hidden until after the May election. That is not something I find honourable or contemplatable. I would never have done that. He did that, that's a matter for him to explain. He hasn't still apologised to the Australian people for doing that.

The alternative approach was for us to put upfront the projections in the budget to say honestly and straightly with the Australian people, "This is a difficult situation, we will take the edge off these increases," and that's what we've done.

HAMISH MACDONALD: Woodside Energy this morning said they back a serious conversation about a domestic reserve on the East Coast similar to what WA has in order to stabilise the market and prices.

This is what Woodside's executive VP, Mark Abbotsford said earlier.

MARK ABBOTSFORD: When we look at a national reservation, which has obviously been discussed at some point, really what a reservation is, is sub text for saying we need to get more supply into the market. Now, reservation is clearly one tool to achieve that, but we also need to be looking at various other tools in the investment framework that will result in companies like Woodside putting capital on the table to increase supply.

HAMISH MACDONALD: Do you think that having a domestic reserve on the East Coast might deal with some of the problems that you are talking about?

CHRIS BOWEN: Well, a reservation, Hamish, could only be applied prospectively, I think effectively that's what Woodside was saying there, so it's not something that you would contemplate putting on retrospectively to existing gas supplies. So that's a conversation that can be had. I don't feel that that is something for immediate focus in terms of the current issues we're dealing with, because nobody, I don't think, with respect, Woodside was just there suggesting that some sort of prospective reservation going to the future would in any way deal with the sort of issues that we are dealing with here today in relation to elevated prices which are being dealt with around the world.

HAMISH MACDONALD: We do have to get going, we've got more guests to speak to this morning, but very briefly, is it helpful, do you think, to resolving this situation having your colleagues, like Ed Husic, out there saying that the producers are addicted to the Putin profits they're making?

CHRIS BOWEN: I think, Ed - no, I agree with Ed, and I've effectively said the same in this interview, Hamish, that war profits continuing were not acceptable to the government, hence we intervened. I mean - and we've said to the gas companies, "We accept and I understand that you'll make those profits on your exports," we are not seeking to interfere with that, but I don't think it's unreasonable for Australian gas to be sold to Australian industry at reasonable prices unaffected by the war in Ukraine. I don't think that personally is a radical proposition, and while I understand the gas companies didn't agree with that, that is the decision of the Parliament.

HAMISH MACDONALD: Climate Change and Energy Minister, Chris Bowen, thank you very much.

CHRIS BOWEN: Good on you, Hamish, any time.