The gas debate got a good boost over the weekend when the Godfather of Australian neo-liberlaims, Professor Ross Garnaut backed gas export curbs, via the AFR:
ZEN Energy chairman Professor Ross Garnaut says the solution to Australia’s gas crisis which threatens to do “unconscionable” damage to the manufacturing sector is for all three LNG projects in Queensland to be forced to cut back on the amount of gas they export to offshore customers.
Professor Garnaut said while there was much “finger-pointing” about which companies were most to blame there needed to be a clear-eyed and immediate response because there was now a “price crisis” in gas which was far worse than the electricity sector.
“The Prime Minister is not exaggerating when he calls it a crisis,” he said. “There will have to be some cutback in exports.”
A participant in the Adelaide CEDA lunch on energy security with ZEN Energy Chairman Ross Garnaut and SA Treasurer and Energy Minister Tom Koutstantounis passed on further comments by Garnaut on the gas crisis:
“Serious mistakes were made by the Gladstone LNG consortia in building far more export capacity than there were gas reserves to support it” Garnaut said.
“That there had been mistakes has been recognised in the billions of dollars of write-downs made by members of each of the consortia.”
“Unfortunately, the consequences don’t end with the losses by shareholders in the three consortia. The disruption of Australian energy markets, both electricity and gas, has been massive. Unless the situation is changed fundamentally and soon, unconscionable damage will be done to manufacturing and other large users of energy.
“There are ways of balancing supply and demand in the domestic market at something like true export parity prices (well below current prices) over two or three years. For example, one of the potential activities of the ZEN Energy partnership with Santos is to replace with renewables and storage most of the huge amount of gas consumed in the processing and transport of gas. Release of gas conserved in this way onto the domestic market would have a large impact on availability and price.
“But in the two or three years it would take to restore reasonable balance in the domestic market without catastrophic destruction of demand, too much damage would be done.
“The only way to contain damage over the next two or three years is to curtail exports. The cost of the curtailment should be shared by all three consortia “.
“There has been finger pointing on the cause of disruption. In truth, all three consortia have contributed to it and should contribute to the costs of correcting it”.
Hear, hear. In times such as these, pragmatism is the better part of purity. A message that GLNG may be getting:
Total’s view is understood to be that any additional income generated by a release of GLNG-contracted gas back into the domestic market should be shared in proportion by the partners. Santos would get 30 per cent of the upside, Total and Petronas 27.5 per cent each and Kogas 15 per cent.
There is logic in this, but only if the price of the gas recovered by domestic customers is not excessively inflated by the transport costs that are technically implicit in moving gas from the Cooper to Gladstone and then having it bounce back to other east coast customers. That might well be a pipeliner’s dream but it would not meet the Prime Minister’s demand that households and industry be provided with “adequate supply at reasonable prices”.
Tensions are said to be bubbling uncomfortably high within the Santos-led joint venture that operates an all-too-obvious fulcrum of Australia’s domestic gas supply crisis, the GLNG liquid natural gas project on Gladstone’s Curtis Island.
…Santos boss Kevin Gallagher has told government that the quickest solution to any shortage is to put the Horizon contract gas back into the domestic market. But that offer does not come with any price guarantees. Santos would not simply swap one low-priced contract with another. Gallagher would aim to sell the gas at something nearer the marginal cost of local gas, which many believe now sits at something nearer $9GJ before delivery.
But the potential of the domestic market pricing is apparently just as obvious to the GLNG JV generally, and to petroleum super-major Total particularly.
It’s still not enough and, frankly, who cares how it shakes out? Unless we get some new rules for the market that guarantees more gas long term then nobody in the cartel is going to blink in issuing new contracts. We need domestic reservation, third party gas export bans and “use it or lose it” rules to make the market function permanently or we will be right back here in a year or two.
