Via the ABC:
East-coast Australia’s domestic gas shortage is crippling some rural businesses, and has prompted one owner to accuse the nation’s politicians of treason.
Chris Cummins, from Cowra in regional New South Wales, owns an abattoir and is about to lock in a two-year contract with his gas supplier.
He told the ABC he expected the fixed price to surge by about 60 per cent.
“We are going to be $100,000 a month worse off in costs for our gas,” he said.
“This is a death knell for so many businesses and I know pensioners who will not turn their heaters on in the winter time because they cannot afford it.”
He wants the Federal Government to find some answers, but he also made a suggestion for the nation’s Energy Minister.
It comes amid a furious debate in Federal Parliament about electricity blackouts and large hikes in power bills.
Australian Competition and Consumer Commission (ACCC) chairman Rod Sims said the east-coast gas shortage was not getting the attention it deserved.
“We are not only short of gas. We also, particularly in New South Wales and Victoria, do not have enough gas suppliers,” he said.
The ACCC pointed to three factors driving the domestic gas shortage.
First, the majority of Australia’s liquefied natural gas (LNG) is exported to Asia.
“Three LNG plants went ahead at the same time — $20-billion investments — that saw a lot of gas being exported,” Mr Sims said.
Reserve Bank research shows that more than 80 per cent of Australia’s LNG is exported to Japan, while China and Korea take most of what is left.
The LNG purchased by Asian buyers is largely committed under long-term contracts, meaning the price is locked in.
That was all going smoothly for the gas sector until the oil price dropped.
“That has partly been reversed now but it did cause cash-flow problems for some oil and gas producers,” Mr Sims said.
“And thirdly, we then had the almost unanticipated bans or difficulties with developing deposits in New South Wales and Victoria.”
Four states and territories have banned unconventional gas exploration called fracking, and the Federal Government is urging them to lift the moratoriums.
Fracking, or hydraulic fracturing, is a way of extracting unconventional gases from coal seams and shale. High-pressure water and chemicals are pumped into rock which is fractured to release the trapped gases.
Opponents argue that it damages water tables and the environment.
New South Wales, Victoria, Tasmania and the Northern Territory have temporary or permanent bans in place.
Mr Sims said more gas exploration, of some description, was critical.
A Chinese-Singaporean controlled company wants to build a 622-kilometre pipeline from Tennant Creek in the Northern Territory to Mount Isa in Queensland.
If successful, it could connect the Territory to the east-coast gas market and send critical supply further south.
The company, Jemena, has maintained it has the approval from relevant Indigenous groups, but fracking is causing controversy.
Some Indigenous people from the Territory’s Barkley region, including Paul Wickham, are worried Jemena could resume exploration if the ban is lifted.
“That is another agreement that we want to see signed off properly but we have not seen any of that in front of us.”
The pipeline still needs the Commonwealth’s tick of approval but Jemena said it was confident the project would proceed.
Rod Sims is a good guy and a good economist and he’s right about the problem of gas and competition shortage. But in seeking a solution the ACCC is making the great the enemy of the good. The community is dead against fracking. State governments know it. Trying to turn that around is nigh on impossible. Pipelines can help a bit but that gas will not be cheap either given extraction and piping costs. Moreover, the LNG white elephants are still short of gas. They’ll be siphoning it off the moment it arrives. And they can build more!
The eastern gas market is now in a state of outright failure as the gas cartel applies discriminatory pricing willy nilly to Australian consumers and business. Sure, more gas and competitors could fix it. But that’s the economics test tube not the real world. Out here what is needed is heavy-handed and simple gas reservation that forces local gas to stay local. The ACCC doesn’t like it because it will force down the price and deter development, leading over the long term to other shortages. But guess what? That’s already here.
The Curtis Island white elephants need to be part nationalised or to be taxed heavily to recycle the dough into subsidies for local power, a kind of Piguvian reservation strategy.
Otherwise the problem will resolve itself over time via demand destruction as industry collapses and another wrenching bout of Dutch disease pushes the economy precisely the wrong way in its post-mining boom adjustment.
