BHP gouges itself with gas

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Via The Australian:

BHP Billiton chief executive Andrew Mackenzie, who took a $US105 million cost hit at the Olympic Dam copper and uranium mine in South Australia after recent blackouts, says the nation’s renewable energy schemes could raise costs and reduce power security while having no impact on emissions.

The head of the world’s biggest miner has warned that a long term expansion of Olympic Dam may not go ahead if power security and costs are not addressed and that this will probably need carbon capture and storage if emissions cuts are also wanted.

“Let’s talk about affordability, reliability and emissions reduction, as opposed to having some secondary target about just having more renewables, which might deny you all three,” Mr Mackenzie told media in London last night after releasing a first half profit of $US3.2 billion on the back of strong commodities prices.

“We have lost $US100m in this period because of the intermittency of power in South Australia, and also we are facing more expensive electricity, frankly, than we budgeted for at this time last year.”

With respect, BHP, you’re the one doing the gas gouging that is driving up electricity costs. You own the Gippsland JV with Exxon and are another member of the east coast cartel:

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For instance, AGL had a 13 year contract for gas up until 2018. The settlement to renew it was made mid-last year on the much less secure basis of a three year term. Prices were not released but we all know what happened, from the ACCC report:

Declining production in the Otway and Bass basins, redirection of gas from the Cooper Basin to Queensland, moratoria and other regulatory restrictions on on-shore gas exploration and development in New South Wales, Victoria and Tasmania have combined to severely reduce the availability and diversity of supply in the southern states. This means that domestic users in the south are becoming highly reliant on gas produced by the Gippsland Basin Joint Venture (GBJV).

In these circumstances, there is unlikely to be sufficient competition in the south to constrain the GBJV from charging a price approaching the buyer alternative. This means that to increase competition and put downward pressure on prices, changes are needed to encourage increased supply and a larger number of suppliers to the domestic market, particularly in the south.

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And in the recent SA power outage, it was gas as a “peaking power” source that failed in part because it just costs too damn much:

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We need a fix for the grid not more rent-seeking balderdash.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.