The S&P/ASX200 Index (ASX: XJO) is having its worst trading day in over a year as China’s trade war retaliation has sent the domestic index 2.2% lower at the time of writing.
However, amidst the US-China trade war escalation, the Federal Government has announced that it will explore initiatives to drive down gas prices.
What has the Federal Government announced?
Resources Minister Matt Canavan announced the Commonwealth would formally examine a domestic gas reservation scheme in Western Australia, where he said consumers paid some of the most affordable gas prices in the world.
According to an ABC article, Senator Canavan said, “Imitation’s the best form of flattery and what we’re seeking to do is imitate the best things about what is working in the west and possibly apply it to eastern Australia.”
He added, “Our market is different over here, we’ve got multiple state governments, a pipeline network that straddles those jurisdictions, so we’ve got to work through a lot of issues.”
“That’s why we’re going to have those discussions in a diligent, considered way in coming months and formulate whether or not we can do something to reserve gas here in eastern Australia for our own use,” said Senator Canavan.
What does the Energy sector think?
While the ACCC recently backed reforms for further domestic gas reservation policy and increased regulation in the domestic market, many companies believe that it’s not the way forward.
While the gas producers have argued that the proposed reforms could reduce investment, therefore cutting supply, which would ultimately driving up prices and have the opposite of the intended effect.
However, it’s not exactly surprising that gas producers aren’t in favour of reforms that would potentially cut their profits.
While the AGL and Origin share prices are trading 1.8% and 4.2% lower today, respectively, it’s hard to say just how much impact from the potential reforms investors are pricing in.
Given the broader market downturn, with the ASX200 index being hammered by the US-China trade tit-for-tat, I’d expect to see more of a correction after their respective results releases in the weeks to come.
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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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