Australia reaches peak stupid on gas

By Leith van Onselen

Having just spent $200 billion over the best part of a decade to become the world’s biggest exporter of LNG, Australia is now looking at the absurd prospect of building a terminal to import gas for domestic users. Here’s the ASX announcement yesterday from AGL:

AGL today announced Crib Point (Western Port) in Victoria as the preferred site for a gas import jetty and pipeline to increase energy security and supply for customers in south eastern Australia.

Crib Point is best placed to serve Victoria, Australia’s largest gas market, as well as take advantage of the existing pipeline network, industrial port facility and associated infrastructure.

AGL will continue to engage with the relevant stakeholders, including Government authorities and the Western Port community, to complete feasibility studies on the proposed site.

Richard Wrightson, AGL Executive General Manager, Wholesale Markets, said AGL is looking forward to continuing working with the local community on the proposal.

“This doesn’t signal the end of the feasibility studies for the proposed site but now accelerates the process. We look forward to ongoing consultation with the local community to answer their questions and proceed towards a formal application to the Victorian Government,” Mr Wrightson said.

“This project will enable access to the world market for gas, injecting some much-needed competition into the Australian market and help ease the tight gas supply.

“If all goes to plan, AGL would invest roughly $250 million, commence construction in 2019 and bring the terminal into operation by 2020/21”…

“Our strong balance sheet allows us to take a long-term view and invest our profits into renewable energy and strategic projects such as the gas import jetty and pipeline which will help underpin a more secure energy supply for Australia and has the potential, if required, to supply all of Victoria’s household and business customer gas needs.

“As the largest generator of electricity in the country, we’re working hard to deliver secure, reliable and affordable energy and increase competition in the east Australian gas market for domestic and industrial customers,” said Mr Wrightson.

You can’t make this stuff up. Could you imaging Saudi Arabia or Kuwait importing oil because its residents are paying some of the highest petrol prices in the world? Of course not. And yet this is exactly the situation facing Australia with regards to natural gas – all to reduce the ability of the gas cartel to gouge domestic users.

In reality, the terminals will never be used anyway given the moment they make the local market contestable the cartel will supply local gas more cheaply than the US or North Asia can. In the process, we will have permanently erased Australia’s cheap gas advantage by embedding the costs of liquifaction, shipping and regasification in the local price. But hey, it’s better than letting the cartel rip, gouging manufacturing into oblivion and burdening households with even higher utility bills when they already have no income growth.

Yes, it is installing white elephant infrastructure to offset the toxic impact of other white elephant infrastructure.

It’s a total waste of money versus the simpler solution: domestic reservation!

Policy could simply be shifted so that the gas cartel is forced to sell a certain volume of its gas locally. If it doesn’t then it loses the gas. It’s really just price regulating what is now an effective gas monopoly.

The Australian public and its gas-consuming businesses did not create or sign-off on the mad gas bubble in QLD that led us to this impasse, so they most certainly should not have to pay for it. If the gas cartel buggered up its own investments by misunderstanding that the political economy would not stand for being gouged like it is right now then that is its problem.

Reserve the gas now. If there’s not enough for delivery of export contracts then good. It’ll help mitigate the global glut and support offshore prices so that Asian households pay for the gas not Australians.

If it results in write downs or bankruptcy in producers then too bad. Gas producers dug this hole and they can lie in it.

Comments

  1. GunnamattaMEMBER

    AGL announces Victoria as site for $250 million white hot needle for the economy

    Victoria’s Mornington Peninsula is the preferred home for a national monument to economic stupidity, with Crib Point chosen to become the site of a $250 million facility to ‘test the outer limits of the pain horizon’ for Australian energy consumers.

    Unveiling its proposal, which would see the world’s largest gas exporter cement in an added on cost born by every last Australian residence and business using energy, in a nation which is making itself pay more for its own gas than anyone in export markets, spokesman WR Glibb-Verbiage said choosing Victoria made sense for a host of reasons.

    ‘It’s the most economically parlous state in Australia, which has completely priced itself out of doing anything productive apart from sustaining a population Ponzi, and some of the locals – who were told for a generation that gas was cleaner and cheaper – will scream that much louder as a result. For us that means there’s an extra margin just sitting on the plate. The state government will be that much more responsive to our need to not pay taxes in Australia or pay for the resource we are selling. It’s a win-win.’

    Scoffing at the suggestion that the economics of the proposal were shaky, Glibb-Verbiage spoke enthusiastically at what he saw as superb fundamentals.

    ‘Look, we take the gas coming out of the ground down the road for about $4.50 Gigajoule and we sell it back to the local market for $8-10 a Gigajoule. Its either that or we sell it to Japan or Korea, where they don’t really want it anyway, for $9 a Gigajoule, but that gets us out of a lot of shipping and could save us a lot contesting contract breakage fees as well. Throw in the fact that we can write off any investment in the facility over the entire gamut of operations in the energy retail sector, and the fact that currently we have the customer by the short and curlies as we poke people in the chest with a $12 Gigajoule fee structure, then I don’t think there is the slightest doubt it is not just viable but very attractive all round.’

    Victorian Premier Dan Spaniel said the project would see 22 permanent jobs created, plus more during the construction phase.

    ‘With a load of trucks looking at getting into the site during the building phase it is almost certain that a number of highly specialised traffic management consultants will be needed, and you could be pretty certain that the people driving lunches around and doing any remedial gardening would almost definitely be locals. Over the longer term it would be expected that cleaners and grounds maintenance facilities will come from domestic suppliers, and again the strength of the skill suites of local carparking concierges and traffic management types would have locals in the box seat too.’

    Spaniel noted that his government had been on the front foot in approaching the energy giant, and the extra effort had paid dividends in the face of stiff competition from Western Australia, Tasmania and the Northern Territory.

    ‘We went on the front foot. We went on the back foot. We went down crouching with both arms akimbo. We lay prostrate on the ground sobbing. We held our cheeks apart for easier access. And we kissed anything that looked kissable. Once we could see that the Federal Government was prepared to roast Australia economically in the name of global capital we thought the best approach was front up with a good array of basting sauces. And when the company said ‘who’s dancing?’ we made sure we were first in line.’

    Federal Energy and Environment Minister Jock Falconio hailed the announcement as ’a Great step forward for Australians coming to terms with the energy environment of the future’ and would lay the basis for resources giants reaming Australians for generations to come.

    ‘This will take us to the outer limits of pain management. Companies will always be able to relieve pain at the margins but never letting go of the pliers on the privy parts. A tool to sort of bring about endless wailing with intermittent shrieks of pain but not have the client pass out. A customer base that thrashes impotently on the table in excruciation but never loses the smell of burning flesh or the sight of those ministering to its needs, while not being able to do much about it. That sort of experience will define the future for Australia’

    The AGL spokesman paid tribute to the Federal Government for creating ‘just the right’ settings to make this sort of investment work.

    ‘We do our homework and go into these types of projects with our eyes open. In Australia it has been obvious for some time that this is a government that cares not a jot about logic, economics, the future of its people, or how much pain its visits on the present. These guys are ramrod straight ideologues and they like inflicting pain. The nation is being flooded with immigrants and the Federal Government has trashed the manufacturing sector, the education sector, the public sector and real estate, and that’s before you start thinking about the debt load of ordinary Australians. We see the ongoing energy need sunk into Australia’s future as a key leverage point for accessing whatever there is available across the whole of Australian society, and being pretty much the first port of call once the government of the future decides it needs to offer some relief to the public – which means it will be prepared to do business with us. Investing in a seat at that table is its own reward.’ and adding ‘We see the Victorian opposition leader likes dealing with the mafia, and they could be the next local government. We won’t just leave a horses head in a bed or bash someone with a baseball bat, but we can freeze or roast an entire population to get our point across, capiche?

    Morgan Stanley energy analyst Newt Kongwak said the announcement will underpin global sentiment about Australia’s policy commitment for a generation.

    ‘Nothing sends a signal to the marketplace like this. Nothing says ‘Come here and shove it in, as hard and as often as you like,’ and not many nations have the cojones to be that up front and so completely disregarding to the interests of their own people, and you have to admire that. Sure, it is only a gas terminal, but this is the world’s largest gas exporter at the moment and gas is the marginal electricity price setter for these people at the moment. You apply the same logic we are seeing here to any other economic sector, and it’s basically like telling a 400 pound gorilla to come and knee you in the national economic nuts. It’s just incredible. It’s a white hot needle into the eye of the national economic schlong. Australians will be telling their grandchildren about this.’

    The company is looking at a range of facility designs, with the favourite being modelled on a man on his knees prostrating himself with two large bulbous gas terminals separated by a 120 metre jagged blade lit by flaring gas which reaches into the sky, by Italian engineers Umberto Scapia and Ludovico Rammentarre. Planning approval is anticipated within a year, after environmental concerns have been cemented over, and construction is expected to be completed by 2022.

    • ResearchtimeMEMBER

      There is a role for government monopolies created to supply gas – with a fixed margin… in this instance, this is one of them. Who cares where the gas comes from? Seriously? If its cheaper to buy from Qatar – lets do it!!!!

      If there is demand, fill it. You cannot force companies to produce for a loss.

      • GunnamattaMEMBER

        then why not create a government monopoly to produce gas from the field and distribute it?

        why not call it the Gas and Fuel corporation? (didnt we have one of those and get rid of it because it was one of those government monopolies?)

        We did? and it produced cheaper gas? with fewer interruptions to supply?

        Australia’s gas ‘market’ is a national economic kabuki theatre (with a BDSM fetish)

      • You cannot force companies to produce for a loss.

        That’s right, you can’t. But you can pass and enforce laws that prevent idiot companies gouging Australians. My parent’s gas bill ought to have an asterisk next to the dollar amount and a large font footnote which says “this is more than it used to be because Santos fucked up

    • Even StevenMEMBER

      “‘We went on the front foot. We went on the back foot. We went down crouching with both arms akimbo. We lay prostrate on the ground sobbing. We held our cheeks apart for easier access. And we kissed anything that looked kissable. Once we could see that the Federal Government was prepared to roast Australia economically in the name of global capital we thought the best approach was front up with a good array of basting sauces. And when the company said ‘who’s dancing?’ we made sure we were first in line.”

      Funniest thing I’ve seen in a long while. Beautifully written. I blame you Gunna, for all the peculiar looks I’m getting on the train.

      • I liked the bit about the white hot needle into the eye of the economic schlong. That’s gonna have me giggling all weekend. 🙂

  2. ResearchtimeMEMBER

    I think you are confusing two different issues here… yes a lot of gas and oil companies are going to rack up a lot of losses, and some will go bust… but that in no way addresses power shortages in Oz. In either case, gas is not the answer, its peak only on base-load. And in Oz. completely uneconomic in instances.

    Read previous comments on this topic. There are some incredibly dangerously naive accusations that cannot be supported by the facts on the ground.

  3. Ronin8317MEMBER

    This is a consequence when ‘corruption’ is being marketed to the masses as ‘capitalism’. No action must be taken for the greater good of Australians because ‘the market is always right’. I would argue against it being ‘peak stupidity’ though : the next logically step is for the government to subsidize coal power generation and put a tax on renewables.

  4. It looks like macrobusiness is the only one covering this, google news have a story about AGLs profit at the top o the business section. Maybe I’m getting paranoid…

  5. Credit Suisse has a good explanation as to why we are where we are. From a resources perspective, AU’s is effectively 8 different countries (as each state controls its own gas reserves). Qld exports while Vic imports. It costs $3/gj to pipe gas from Qld to Vic vs $1/gj to ship it from Qatar, so why wouldn’t Vic go with LNG?

    MB does not have a good understanding of this topic.

    • GunnamattaMEMBER

      So all that gas coming out of Bass Strait wouldnt satisfy VIC demand?
      So blocking any pipelines at the Victorian border would have no supply effect elsewhere in Australia

      Qld exports while Vic imports. It costs $3/gj to pipe gas from Qld to Vic vs $1/gj to ship it from Qatar, so why wouldn’t Vic go with LNG?

      …..what utter horse shit. It makes no sense to spend 3 bucks a gig shunting it from VIC to QLD to export at a loss from an LNG plant which is an amortization white elephant. No sense.

    • That’s just using logic erroneously. Sure States own their resources, but as they are part of the Commonwealth of Australia, they are subject to Australian law. So all that is needed is some legislation to solve the problem.

      Using your logic, the US could never have federal income taxes because States are allowed to levy their own.

    • What are you talking about? The Moomba to Sydney Pipeline is currently flowing South (ie QLD to Vic not the other way round). Bass Strait gas has never physically reached QLD. If it did, it would freeze the LNG plants due to high C6+ composition.

      Happy to have a sensible discussion on this but to be told I’m talking ‘horse shit’ by someone who doesn’t understand the East Coast Gas market is pretty annoying.

    • Dave, that’s a fair question to ask. I’m not sure what power the fed’s have to force the states? They don’t seem to be able to make them allow drilling.

      • “make them allow drilling” – indeed, because the Australian people dont want it. Electorates do however want gas reservation – it being the easiest way to ensure lower power prices (and the gas after all belongs to the electorate and not the gas companies).

      • That’s ideologically pure, but doesn’t really work. Reserving volume from existing wells might do the job for a few years, but eventually you need to drill. Unless you want to import LNG…

        Also, ‘the electorate’ is a pretty broad area. I’m sure Victorians would love to make Qld sell them gas below LNG netback and not ever have to drill a well. Qlder’s may prefer maximising royalties for their gas.

  6. reusachtigeMEMBER

    Communists! Enterprise should be free to maximise profit however they like!! If poor people don’t like it then move to a shanty town and drop cables from the nearest pole like all self respecting scum dwellers do. All of this is a small price to pay for the vibrancy that rapid population increase gives us!

    • Precisely!
      Haven’t you guys read Catch 22? You buy at 5 and sell at 3. Any idiot could do it. If there’s some kind of appalling cockup you merely sell the port of Darwin (oops! Already sold – heh heh!) Brisbane or Adelaide to the Chinese (they can’t afford Melbourne yet because that could represent a conflict of interest with the Chinese guys who already own the real estate – but they’re working on it) and still wind up making money..
      The difference between 5 (buy) and 3 (sell) is 2, that is: For the mugs, twice the price everything was before.
      Simple!!! You guys should really should get into the LNG business!

  7. I’m surprised AGL would be willing to put their money into this. They must believe very strongly that there is no way Australia’s gas is coming back to Australia without being frozen at least once.

    • Let’s wait and see.
      I bet it never gtes built. There will be lots of issues that in a “Utopia” moment will be cited as state and local government delays.
      This is just creating the appearance to the Feds that the energy industry is “doing something” to solve this problem.
      It’s a complete and deliberate distraction. The government is lapping it up.

  8. DarkMatterMEMBER

    Peak stupidity? Not even close. If gas is such a valuable in demand commodity then the next step is weekend gas auctions and a reality TV show. “The Pipe” would be a great title.

    • It is my understanding that NSW is already leading the nation in the glass export business.
      From what I can gather NSW collects huge volumes of Glass for recycling and exports it to Queensland logically this must be because Qld has the excess gas to enable glass to be profitably recycled, I can’t imagine any other logical reason for this NSW glass export business existing. /sarc

  9. Australia has reached peak stupidity in many ways – privatization, house prices, broadband that gets slower the more money invested, energy prices, spending on pointless weapons, closing down what little manufacturing we had, etc. Its an impressive and growing list. I’m sure others can add examples.

  10. How right you are nexus789. As the broad voting population progressively dumbs down over the years the self serving politicians that are voted in can, and do become increasingly incompetent and easily get away with it. Their overall accountability is pathetic. Those who endeavour to expose the idiocy of their decisions are drowned out in the surrounding sea of apathy Really sad !!

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