Gas reservation junked as “ideological claptrap”

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From Business Spectator, Industry Minister Ian Macfarlane has junked proposals for domestic gas reservation arguing that:

“There is no good reason for reservation policy. It is ideological claptrap,” Mr Macfarlane told reporters on the sidelines of the APPEA conference in Perth.

“You haven’t got the gas in NSW to reserve and in Western Australia, if you ask anyone they’ll tell you it’s corrupted the market and affected supply.”

Macfarlane also noted that reservation was a sovereign risk issue. A few points for the minister:

  • Australia is the only developed country on earth that has no energy security and reservation policy and,
  • that begs the question, who is spouting ideological claptrap in citing sovereign risk?

As well, Western Australian gas supply may have distorted the market but in doing so it has delivered lower prices than those on the east coast. From a recent ACIL Tasman report on long term contract prices:

  • Woodside’s quarterly update in January 2013 which indicates that its average selling price into the domestic gas market is about $4.40/GJ. Since the North West Shelf venture members sell gas jointly, we conclude that this average price applies to the approximately 60% of the domestic gas volume they supply.
  • The Department of Mines and Petroleum publication titled Western Australian Mineral and Petroleum Statistics Digest 2011-123 stated that the average price of gas sold into the DBNGP in Western Australia rose by five per cent in 2011–12 and averaged $4.20 per gigajoule.

Current long term contract prices on the east cost are in the range of double. As well, releasing further CSG in NSW will do nothing for the local gas price given its prices are now being set by the marginal buyer in North Asia and unless NSW gas is sufficient to drive  down the Japanese price then hoping for cheaper NSW prices is most definitely ideological claptrap. Unless, of course,  one were to deploy domestic reservation!

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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Comments

  1. This country is sick.

    On who’s behalf are these people governing?

    Meanwhile our “leaders” are overseas promising Asian countries energy and food security

    • Farmers ought to be furious. Key fertiliser ingredient Ammonia is made entirely of gas and just got a lot more expensive. Good luck growing without it or superphosphate in Australia’s leached soils.

    • Cant you tell he is governing for the vested interest brigade. When a fool like this opens his mouth to speak look for the hand up the ass, operating the puppet.

  2. So basically, we should allow domestic and foreign owned big business to sell as much of a key natural resource as they see fit at prices determined elsewhere in the world. Under no circumstances should we reserve any of it to ensure our future energy supplies or national security. What was I thinking? This is sheer genius! And to think we bag our politicians…

  3. I think Macfarlane is on the right track. A domestic gas reservation policy would tax gas producers to subsidise users. There are more efficient ways of taxing producers (PRRT, company tax).

    Why subsidise just gas users?

    And instead of subsidising gas use, wouldn’t it be better to try to reduce the domestic gas price by removing impediments to expanding supply? At present the marginal buyer is in North Asia, but once the capacity of the LNG export facilities in Australia is met the marginal buyer will be domestic.

    • The reason I’ve not pushed reservation too hard is because I think prices will fall in the next few years anyway as North American gas enters Asia but that doesn’t mean Macfarlane is making any sense.

      • See. You are a gambling man.

        Gas prices on the eastern seaboard are likely to rise significantly well before any expanded US production at levels to likely to materially impact pricing (if and by how much) come into effect.

  4. Sound familiar?

    The main points of neo-liberalism include:

    THE RULE OF THE MARKET. Liberating “free” enterprise or private enterprise from any bonds imposed by the government (the state) no matter how much social damage this causes. Greater openness to international trade and investment, as in NAFTA. Reduce wages by de-unionizing workers and eliminating workers’ rights that had been won over many years of struggle. No more price controls. All in all, total freedom of movement for capital, goods and services. To convince us this is good for us, they say “an unregulated market is the best way to increase economic growth, which will ultimately benefit everyone.” It’s like Reagan’s “supply-side” and “trickle-down” economics — but somehow the wealth didn’t trickle down very much.

    CUTTING PUBLIC EXPENDITURE FOR SOCIAL SERVICES like education and health care. REDUCING THE SAFETY-NET FOR THE POOR, and even maintenance of roads, bridges, water supply — again in the name of reducing government’s role. Of course, they don’t oppose government subsidies and tax benefits for business.

    DEREGULATION. Reduce government regulation of everything that could diminsh profits, including protecting the environmentand safety on the job.

    PRIVATIZATION. Sell state-owned enterprises, goods and services to private investors. This includes banks, key industries, railroads, toll highways, electricity, schools, hospitals and even fresh water. Although usually done in the name of greater efficiency, which is often needed, privatization has mainly had the effect of concentrating wealth even more in a few hands and making the public pay even more for its needs.

    ELIMINATING THE CONCEPT OF “THE PUBLIC GOOD” or “COMMUNITY” and replacing it with “individual responsibility.” Pressuring the poorest people in a society to find solutions to their lack of health care, education and social security all by themselves — then blaming them, if they fail, as “lazy.”

  5. We’re just not used to being governed by proper adults. Sometimes they have to be patronising to the little ones. It may make us cross, but just be grateful you don’t have the burden of being a proper, sensible, objective, grown-up policy maker. We’ll all have our chance to play in the ideology free zone of placating business interests once we’re grown up, too.