Interests to gather at the gas honeypot


The news from the AFR on Australia’s phony gas crisis gets weirder today. From the AFR:

The Business Council of Australia is looking to broker a possible deal on the contentious issue of cushioning manufacturers from higher energy prices by ensuring adequate supplies of competitively priced gas are available for local use.

On Friday the BCA wrote to 16 chief executives of Australia’s biggest energy suppliers and customers inviting them to join a new energy working group.

Boffins from gas and manufacturing firms will lock horns, apparently, and debate the following:

…Earlier this month BG Group Australia chairman Catherine Tanna said companies would accept demands to supply the domestic gas market if governments released more acreage for exploration and rules were clear from the start.

…While Industry Minister Ian Macfarlane has ruled out a retrospective gas reservation policy he has signalled his willingness to consider acreage reservation.

…On Monday, gas pipeline owner Jemena weighed into the debate, suggesting temporary assistance is justified for some manufacturers should prices spike higher to save jobs and investment.

…“All gas rich nations globally reserve gas for domestic value adding industries as well as having gas for export. Manufacturing Australia is asking that Australia does exactly the same thing as what other major gas rich countries do; ring fence what is required domestically which on the east coast is 700 petajoules a year to be used domestically for households and industry. We are very happy to export past that.”

My input is that more acreage won’t work because the cost of extraction for terrestrial gas is high anyway. Same goes for domestic reservation. Acreage reservation won’t work, just as it doesn’t in Queensland, because regulators either don’t care or nobody will develop underpriced gas when they get fatter margins on export tenements. Protection will work but comes with myriad other problems.

Gas prices are going to rise locally but fall regionally so just get on with adapting to it. As the Pacific market develops, there will be an equalisation of prices everywhere, including the US, and no loss of competitiveness anyway.

This is really just about the profits and bonuses of the few, as usual.

David Llewellyn-Smith

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.

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  1. If the gas exploration companies are correct, there is ample coal seam gas just off shore Newcastle- Sydney region, which can be developed to provide for the NSW domestic supply, indeed that is their business model. Terrestrial CSG is going to be too environmentally damaging.IMHO.WW