How’s that Banana Republic treatin’ ya? From the AFR:
Soaring east coast gas prices due to the cold snap and rising demand from the Queensland LNG projects have triggered fears among manufacturers about a Tasmanian-style energy crisis that would lead to losses.
…Wholesale gas prices in Sydney for Thursday reached almost $29 a gigajoule, about 60 per cent higher than their peak in 2012.
…The price squeeze has raised fears among gas buyers that they are one step away from being asked to cut back their consumption to preserve supplies for households, just as industrial electricity users had to in the recent Tasmanian hydro-power crisis.
“In a worst-case situation we would be asked to offload, and the community then has really got to make the decision do they want to keep people in work or do they want to keep their houses heated,” said Brickworks managing director Lindsay Partridge, recalling just such a situation in southern California in the early 1980s.
…”No one will write you a contract beyond 2018 at any price, so that makes things very concerning,” he said.
The head of the APPEA oil and gas industry group Malcolm Roberts noted that nearly all gas traded on the east coast was under long-term contracts, giving certainty about prices and volumes. He said the spot market usually accounts for only 1-2 per cent of gas traded daily and tends to be volatile, with Sydney prices ranging from $7.61-$28.81 over the past week, while prices in Queensland have been $9-$12.
“This highlights the urgent need to develop more gas supply and suppliers,” Dr Roberts said. “AEMO has warned that new reserves must be developed by 2019. Conventional gas fields will begin to decline as early as 2017.”
And the chart:
It’s not just the spike. The price trend is very clearly up in all eastern states.
But that’s just the beginning of the self-reaming going on here. The price of Australian gas in Japan, our largest LNG customer, has cratered well below what it costs at home:
Again, look to the trend.
So, while Japanese consumers and industry are enjoying a golden age of cheap gas hovering below $5Gj, we at home are taking it right in the team, especially industry. The recent ACCC report into the east coast gas market showed how much:
To sum up:
- $80 billion dollars has been burned on three LNG plants in QLD that make no money;
- but, they are a part of an east coast gas cartel that can charge whatever they like at home given their exports have generated a shortage;
- that is, locals are subsidising the export losses of Banana Republican gas titans who mis-allocated this much capital piled upon pallets:
- and, to boot, we’ve given ourselves epic Dutch disease because our manufacturing is driven out of business owing to cheap gas in Japan (and everywhere else but here).
This rates as one of the most singularly stupid and rapacious examples of the “resources curse” anywhere in the third world which, frankly, is where our policy-makers seem to have learned their craft.
So, what’s the answer:
- the ACCC and rent seekers want more gas supply but NIMBYs won’t let them, with the fair point that unconventional gas could poison the water table;
- the LNG industry has suggested eastern cities build LNG intake terminals so they can trade on the global market where gas is cheaper but that means we will be permanently embedding the price of freezing, shipping and unfreezing our own gas in the local price thus erasing any gas advantage we ever had permanently and fattening the margins of the same cartel;
- we apply domestic gas reservation to the cartel (or break it up).
Option one is politically untenable.
Option two is ridiculous but would at least prevent the kind of spike we see today (although it would expose the east coast gas price to nasty cold winters in the US or elsewhere).
Option three is criticised because it lowers prices and disincentivises supply development but is the clear winner. Supply is already retarded and ain’t going to come. Let’s just get on with fixing this problem by forcing the LNG three to sell more gas locally at export net back prices and if they argue against it then nationalise and break them up a la Standard Oil.
They pissed away their money. We should not have to pay for it.
