For God’s sake, force gas to stay in Australia

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Via the AFR:

The east coast gas debacle has become a game with no winners, even with the Australian Domestic Gas Security Mechanism.

While LNG producers have been vocal on the hit to their reputation from LNG export controls, neither can manufacturers expect much relief from their problem of high gas prices.

In just over two weeks’ time, the cumbersomely named ADGSM – the upshot of years of dysfunction in energy policy, over-optimistic LNG investors and low oil prices – will become a reality.

And while the Australian Energy Market Operator has toned down its warnings of a supply shortfall in the next couple of years, its “finely balanced” assessment of supply and demand still leaves a chance that federal Resources Minister Matt Canavan will soon afterwards declare 2018 as a potential “domestic shortfall year” under the legislation.

No winners indeed:

  • Asian customers don’t want the gas. Indeed, many are reselling it in spot markets at big losses;
  • Australia’s QLD LNG terminals are shipping the gas at big losses with breakevens around $15Gj and gas going for $9Gj;
  • Australian consumers and businesses are paying more than ever versus Asian customers for the same gas:
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As you can see, we’ve swung from a huge advantage over Japan to a huge disadvantage in a shockingly swift time frame. There may be no winners but Australia is the biggest the loser by a long, long way. Remember that we should be paying export net back prices (which would be zero on the above charts minus the $1.80Gj cost of liquifaction and shipping). It’s obscene.

If you force the gas to stay in Australia then the local price will fall and regional prices may even rise a little.

Just do it and do it hard.

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About the author
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.