From the AFR today:
Cheap power used to be one of Australia’s natural competitive advantages. That was based on plentiful supplies of black and brown coal that now are being effectively taxed for the carbon emissions they produce and replaced by high-cost renewables. And it included cheap gas, which in the past was trapped within the Australian market. But technology now allows gas to be chilled to very low temperatures and exported around the globe. That has intensified Australia’s comparative advantage as an exporter of raw materials, putting the nation on the verge of becoming the world’s biggest export of liquefied natural gas. As a result, the domestic gas market has been linked to the global market for energy. So the price of Australian gas has tended to rise to the world price – even if that price itself has been depressed by the global oil glut.
…But the Labor opposition, in cahoots with the Australian Workers Union and regrettably backed by Dow Chemicals, wants to interrupt the growth of this massive new export industry by lumbering it with a new form of industry protectionism. Labor proposes that an independent board somehow similar to the Reserve Bank of Australia should assess every new LNG project and determine whether a portion of its production should be kept onshore to effectively subsidise local gas prices. Labor says it wants ordinary punters, not foreign energy multinationals to enjoy the fruits of Australia’s massive expansion in LNG.
…Yet Australia needs this foreign capital. For our entire history we been a capital-importing country, either debt or equity.
And Bartho:
Perhaps the most surprising aspect of Bowen’s position is that it comes only weeks after the Australian Competition and Consumer Commission, following a year of inquiry into the east coast gas market, produced a report that gave the notion of domestic gas reservation – and a national interest test for proposed gas exports that included consideration of the impact on domestic supply — very short shrift.
The ACCC said its inquiry had not identified any market failure in the east coast gas market that would justify the introduction of a gas reservation policy. The gas supply issues that it had identified related to a structural lack of competition in the southern states and these issues would not be fixed by a reservation policy, it said.
In fact, it said, those issues could be worsened if a reservation policy was enacted which artificially depressed prices in the short term and discouraged investment in new gas supply.
…The most significant conclusion, however, is that forcing producers to receive lower returns from their investment in new resources makes the investment less attractive, which would inevitably impact on the extent of new supply.
…It is worth noting that the domestic gas price, while being set by the international price now that east coast gas is being transformed into LNG (after about $80 billion of investment), is a “netback” price.
While it reflects the international price, it excludes the costs associated with liquefaction, transport and re-gasification of the gas – the domestic price will inevitably be lower than the prices paid by industrial users’ regional competitors, so there is still competitive advantage for domestic companies relative to those companies operating in economies without significant gas resources.
And from the lobby, APPEA, itself:
The national interest test on gas exports announced on Wednesday by the Labor Party will rather “discourage than stimulate” investment in developing Australia’s gas reserves, according to the Australian Petroleum Production & Exploration Association (APPEA).
“There is an urgent need to bring more gas to market to ensure reliable, long-term supply in eastern Australia,” said APPEA CEO Malcolm Roberts. “We need policies that encourage more investment in developing new reserves,” Roberts said.
According to Roberts, adding new “regulatory risks” does not help, especially at a time of depressed prices.
In its Inquiry into the East Coast Gas Market report released last month, for example, the ACCC warned that reservation policies, such as a national interest test, would “weaken incentives for further gas exploration and appraisal.”
The opposition Labor Party proposed on Wednesday new policy under which new liquefied natural gas projects in Australia may need to set aside supplies for domestic use.
“In addition, new gas projects which are scaled into the domestic market may be forced out of the market due to poor economic returns. Over time, reservation policies would reduce the likelihood of new sources of gas being developed, to the detriment of the level of diversity of supply for domestic gas users,” Roberts said.
“In a market that is facing supply issues arising from LNG, moratoria, and a low oil price, further impediments to gas supply development would be detrimental and so should not be introduced,” he said.
Roberts said it was “disappointing Labor had bowed to union demands” to introduce a policy that could penalise one of the nation’s “most successful export industries“.
“An export gas industry does not threaten domestic gas supply. Our major gas exporters are also major suppliers to the domestic market,” Roberts said.
“The opportunity of LNG exports has made possible the massive reinvestment in gas production and infrastructure of recent years,” he said, adding that Australia “cannot afford to increase sovereign risk and project costs if it wishes to convert its gas reserves into jobs, royalties and exports.”
With due respect to all, what utter shite. The east coast gas crisis is already here. It’s not some figment of future policy. We’re not paying less than anyone else. Large industrial users are paying a lot more:
NSW:
VIC:
And SA:
There’s an ongoing crisis of competitiveness here that is wrecking Australian manufacturing. In Europe you can currently buy gas for $3.85mmBtu (AUD 5.35). In the US, for $2mmBtu (AUD 2.78). In North Asia for $4.40mmBtu (AUD 6.30). Everyone above is paying $6-11GJ (mmBtu and GJ are roughly comparable).
There is a massive and global gas glut yet by letting a small number of gas monopolists control domestic supply at home while shipping it offshore to the highest bidder we’ve completely $%#&*@ ourselves. Industry and consumers are literally subsiding the rents of a failing export industry. This is perhaps Australia’s truest example of Banana Repulicanism amid a plague of it right now.
There are a number of possible solutions to this including more investment or breaking up the gas cartel or applying domestic reservation. Given the global gas glut is so massive, domestic reservation makes the most sense. Thus, the only thing wrong with Labor’s policy is that it is not retrospective and does nothing to resolve and extant crisis.
But we all know why, don’t we? When journalists simply upload the oil lobby press release what hope is there of winning the debate?
