Mirabile dictu! You’re paying less than the Japanese for your own gas again. As the Winter spike passes, the east coast gas average price has eased back to US$5/GJ while it is now a little above US$6/GJ in Japan:
As the brains trust meets, from Yahoo:
Australia is on track to become the world’s biggest liquefied natural gas (LNG) exporter by 2019 yet faces a looming shortage at home as states restrict new drilling onshore and cash-strapped oil and gas companies cut spending.
The paradox has led to urgent calls from everyone from Australia’s energy minister to petroleum giant Royal Dutch Shell and big industrial users like Dow Chemical and fertiliser group Incitec Pivot for action to spur new supply.
The issue is set to come to a head this month, with state and federal energy ministers due to meet on Friday and the government in the state of Victoria set to decide whether to lift a ban on onshore gas developments.
“When Australian gas is selling for less in Tokyo than it does on the east coast of Australia, there’s clearly a market failure,” Incitec Pivot Chief Executive James Fazzino said in an email to Reuters.
…Under pressure from green voters and farmers, Victoria has banned onshore gas developments, including fracking, and New South Wales has restricted developments, limiting new supply.
Government moratoriums could mean that “importing LNG from Curtis Island or Papua New Guinea” may be the only way to meet gas demand in Victoria and New South Wales, Shell Australia Chairman Andrew Smith said in a speech last week.
Shell is sitting on one of the biggest undeveloped gas reserves onshore, at its Arrow arm in Queensland, but Smith says southern demand should be met with local gas due to the costs of pipeline transport.
Australia’s competition watchdog has pipeline costs in its sights – saying operators have been able to charge monopoly prices – and also wants to boost competition between suppliers.
The federal government is trying to address the issues, with former Resources Minister Josh Frydenberg now running a revamped portfolio bringing energy and environment policy together.
Reforms would aim at a “more affordable, accessible and reliable energy supply” as Australia moves to cut emissions, Frydenberg said in an interview.
He urged states concerned about onshore drilling not to impose blanket bans, but to evaluate projects individually.
“I don’t think they would want to be explaining to their constituents why they adopted policies that drove prices up,” Frydenberg said.
They don’t need to explain it. They’re responding to community angst about water table poisoning. They have the community fully on side. There are other problems with Mr Frydenburg’s solution:
- selective gas extraction will not be enough to reconfigure the local gas market and boost competition enough to break the cartel;
- any new gas will face precisely the same temptation to flow north and offshore anyway, especially so if it continues to enable local cartel gouging, still requiring domestic reservation.
No, the solution is not more local gas in private hands. A government corporation operating with a mandate to sell locally at fixed margins could force the cartel to heal but it will still have to fight local resistance. The public buying Santos would achieve the same end.
But the least complicated and most obvious solution is the heavy-handed regulatory solution: domestic reservation should be applied and enforced on gas exporters, like it is in every other country on earth. It can be done formally via law or it could be done informally and less efficiently by installing cheap floating LNG import terminals in Sydney and Melbourne that never get used.
Looking for a perfect market solution here is useless, the market is horribly broken and needs a heavy hand to fix it.
