Via The Australian:
Malcolm Turnbull has gained commitments from two of the nation’s biggest gas exporters to put more supply into the domestic market as he puts the sector on notice to expect more severe federal intervention if it does not help ensure energy security.
The Prime Minister made it clear he was willing to impose drastic regulations, including a “reservation” policy to force exporters to redirect their gas to local customers, if the national interest demanded tougher measures.
“The considerable powers the commonwealth has are obvious ones that we would never shirk from using in the national interest,” he said after his meeting with gas industry chiefs in Parliament House.
The Prime Minister claimed a win from the meeting by saying he had commitments from two big gas companies to increase more gas supplies at periods of peak demands, while a third operator had taken the issue on notice.
The government will hold another meeting with the industry in four weeks to flesh out the commitments, setting the rules for how big gas producers along the east coast should make supplies available to ease shortages in the domestic market.
Stronger action by the competition regulator is also being planned to increase the transparency around the price being paid and the contracts being signed, which in some cases have seen gas intended for the domestic market resold for export at higher prices.
Peak demand is not the problem, and has already been solved in South Australia, though it may be relieved to know that its new peaking gas power plant can at least secure some fuel.
The problem is the price of gas all day, every day. Here is the chart showing the trend. Note there are only two “spikes” where more peaking supply would have helped:
And for volume users in manufacturing the trend is the same:
Note that is 2015 and there are now reports of $20Gj contracts being offered. From the Australian Industry Group yesterday:
“The soaring price of Australian gas has now reached record levels, taking Australia from having a competitive advantage in low gas prices, to the point where even Japanese customers are able to buy gas on spot markets for well below the prices being offered to Australian customers today.
“Current spot market prices for the USA, Europe and Japan are (in Australian dollars):
- USA – $4/GJ (Henry Hub)
- Europe – $8.40/GJ (World Bank)
- Japan – $11/GJ (METI report of spot LNG landed) [you can actually buy gas in Japan for $7.75Gj May delivery]
“Meanwhile we are seeing in Eastern Australia that gas is being offered for new contracts at $16-22/GJ in the short term, and $12.50+ for 3 years. Prices seem to be headed up from here. This is economically unsustainable and will drive investment and jobs offshore.
“Immediate action is needed. New supply will be needed from onshore gas resources in New South Wales, Victoria and the Northern Territory, but that will take years to deliver. In the meantime the Government is rightly moving to encourage commercial arrangements that swap gas from the export market to domestic supply. Liquid global markets in LNG can help exporters meet their commitments. The only alternatives in the near term are catastrophic demand destruction or sovereign risk intervention,” Innes Willox
Your utility bills are going up as well of course because gas sets the marginal cost price in the national electricity market (the green arrow is the carbon price end and red the start-up of east cost LNG shipments):
Providing more peaking gas will prevent the super price spikes but it will not prevent a rising average price nor will it do anything for the bulk contracts used by industry.
Details of the commitments for more gas are sketchy but a less forgiving man than I might conclude that a cynical deal has been struck to carve consumers out of the most obvious fallout from spikes in gas prices so that a more discreet profiteering can continue and the outright gouging of manufacturing proceed unhindered. The process is also poor. If you’re going to regulate a market to force it to function then just do it. Moral suasion of this sort blurs boundaries between regulator and regulated, like we see in banking, and increases the prospects of capture. Why should Big Gas have a hot line to the PM? A better idea is to set some big, dumb rules and let the market sort out the rest.
Meanwhile, there is this, via Domain:
Prime Minister Malcolm Turnbull will today reveal plans for a $2 billion expansion of the iconic Snowy Hydro scheme that could power up to 500,000 homes through a new network of tunnels and power stations.
The surprise intervention, a potential game-changer in the political brawl over flaws in the nation’s electricity system, will increase the scheme’s 4100 megawatt capacity by as much as 50 per cent.
…The proposed expansion could, in one hour, produce 20 times the 100 megawatts of power from the proposed battery farm announced by the South Australian government earlier this week.
That’s sensible stuff if the economics add up. In theory, it ought to be cheaper than batteries. But this is just a tactical move. There’s still no strategic plan that brings states and Commonwealth together, the opposite in fact, not even a carbon price to help the market equalise investment across state boundaries.
Laura Tingle is impressed:
…for now the story is the sheer drama of the fact that the government has showed itself to use shock tactics that neither side of politics has engaged in until now to force the private sector to pull its finger out on domestic gas supplies.
Consider the language:
“The Commonwealth government has enormous power in this area, as you know,” Turnbull told a press conference after the meeting. “We have the ability to control exports. So what we’re seeking from the industry – and they understand the context in which their commitments are being sought – are commitments that ensure that the domestic gas market is well-supplied.
“Let me say this to you – all of the powers that we have under the Constitution, we reserve to be able to be used as and when the national interest demands it.”
The message was just as tough in his meeting with gas executives. They were invited to consider the optics of the public seeing a terminal being constructed to import gas even as most of ours is sold to the lucrative international market.
For now, at least, Turnbull is leaving it up to the gas industry to work out how they fulfil a commitment to get more gas in to the domestic market.
This helps avoid accusations of sovereign risk and actual market intervention. But there was no doubt what the Prime Minister was threatening if there was no signs of action: the full gamut of powers open to the Commonwealth, from export controls to taxation. Finding a way of constructing a domestic gas reservation is still clearly on the table.
Remember Laura, Do-nothing Malcolm is very skilled at applying the right mask to any job. But he has proven equally unable to deliver on anything afterwards. My view is that this is the result of who the PM is, not any political considerations, so a very healthy dose of skepticism is needed.
There is little in the ideas that suggest gas has been sustainably addressed. Minister for alien-probing victims, Matt Canavan, is still beating other drums:
Speaking before Malcolm Turnbull’s meeting with gas industry executives yesterday, Senator Canavan said protecting domestic energy security must be paramount and he warned that if change was not seen “other options will have to be considered’’.
He said gas reservation was often raised as a solution, but the government did not believe this was the best option.
“We don’t have a reservation policy for our coal industry yet we have no problem getting supplies of coal for the domestic Australian market even though we export most of it,’’ he said.
We don’t have a coal cartel, Matt. I would like to see more state gas released, coupled with domestic reservation otherwise it’ll just go to Japan too, but the SA approach of dealing in landholders is better. Moreover, Victoria doesn’t have it, via Domain:
A 2015 parliamentary inquiry found the state does have large reserves of conventional gas (although in recent years that too has been depleted), but it is located in Bass Strait, where extraction is relatively non-controversial.
But the state’s reserves of onshore conventional gas is far less clear. As the 2015 parliamentary inquiry notes, there has been a lot of exploration for onshore conventional gas reserves in Victoria since the 1950s.
No conventional gas has been found in the Gippsland region. In 1959 conventional gas was discovered near the Port Campbell township, in the onshore Otway Basin, where it was extracted until being depleted in about 2006.
The bottom line is that there are currently no proved or probable onshore gas reserves in Victoria even though numerous exploration licences have been issued.
The Geological Survey of Victoria does, however, estimates that up to 110 petajoules of conventional gas could be accessible, subject to a comprehensive geoscientific investigation. To put that in context, 110 petajoules represents about six months’ supply, which is far from an “enormous” amount.
That is right. Here’s the table from AEMO:
There’s no fixing this without new rules: domestic reservation, use it or lose it, and banning third party exports, plus national energy reform. I don’t see much to suggest that the Do-nothing Government has the brains, gumption or personnel.
