ACCC shames gas pensioner killers, backflips on reservation

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The new gas narrative is given greater impetus today by the ACCC:

Australian factories are at risk of shutting down and sacking workers as the nation’s gas exporters starve local customers in favour of overseas clients, according to a dire warning from the competition watchdog that clears the way for a gas crackdown.

The Australian Competition & Consumer Commission slammed the three gas giants in a clear sign to Malcolm Turnbull to impose the extraordinary export mechanism in order to guarantee supplies to Australian manufacturers and power stations and ease pressure on power prices.

“The federal government may be faced with a choice of pulling a trigger on the mechanism on the one hand or seeing factories closed and jobs lost,” ACCC chairman Rod Sims said.

…In a sign of the pressure on ­employers, Mr Sims said Bass Strait gas producers BHP and Esso were running reverse auctions to ration supplies, leaving some customers without energy despite their willingness to pay.

Mr Sims also blamed state governments for halting the development of new gas reserves, saying environmental concerns might justify some restrictions but not blanket bans — an apparent warning shot at the bans in Victoria, NSW and the Northern Territory.

The ACCC’s findings suggest there will need to be tight controls on gas exports from January 1, when the mechanism starts after the government gives the companies a chance to respond to its conclusions.

“Those who criticise consideration of the gas security mechanism need to understand all the options available right now. There are not many. This is a very, very bad place to be,” Mr Sims told the National Press Club. The Australian Petroleum Production and Exploration Association has warned against new controls, arguing that members such as Santos are putting more gas into the domestic market.

Mr Sims said it was “ puzzling” and “baffling” that the three big exporters, which ship their liquefied natural gas from Gladstone in central Queensland, sold excess gas on the international spot market when they could have supplied Australian customers.

In his speech, Rod Sims clearly described the Pensioner Killers at work:

It is particularly concerning that the burden of higher electricity prices disproportionately affects segments of society which are least able to afford it. The proportion of household disposable income spent on electricity is around five times greater for the lowest income quintile as it is for the highest income quintile, as shown in Figure 3.

Figure 3 – Median market offer as a proportion of household income in 2016

As we have moved around the country, our Retail Electricity Pricing Inquiry team heard stories of Australians having to ration electricity through winter, having to choose between paying medical bills and paying electricity bills, and having only a small amount to spend on food after rent and electricity is paid for.

And, as with high gas prices, the effect on industry is also telling.

There are many cases of firms facing a doubling or even tripling in electricity prices in their most recent offers over the last 12-24 months, as companies come off 3-5 year contracts. Often electricity is at least 5% of total costs, and firms that are in the traded goods sector cannot pass on these cost increases.

Small businesses are under significant pressure from rising electricity prices. One retail grocer with multiple sites saw in increase of over 50% in their monthly bill, even after taking many energy efficiency measures. Given the thin margins in the industry, the business will need to lose the equivalent of 12 full-time jobs to offset the costs.

Many medium-sized food and non-food manufacturers have seen electricity prices increase by 20% recently or by 100% or more over the last five years. Some had only 1-2 offers for supply; some are so desperate they are buying directly from the spot market, or are considering doing so, which is extremely risky.

Then we have the stories from many large businesses. While BlueScope, for example, has achieved over $300 million in production cost savings to stay in business, it has also seen a near doubling of its electricity costs since 2016, as shown in Figure 4.

Figure 4 – BlueScope steel’s electricity costs 2016-2018 [1]

We at the ACCC have been sounding the alarm in relation to business energy costs for some time. It is great that there is now considerable focus on this issue.

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The ADGSM is not enough. We need “use it or lose rules” and dramatic intervention in upstream gas production, including force developing reserves and price controls if necessary. This is not some economic test tube. It’s a real life, real time, economic disaster born of total market failure. The ACCC has its bloody finger prints all over it, having condemned gas reservation until today and previously allowing the gas cartel to take shape through decisions like Shell buying the Arrow reserves just last year. You’re leading from the rear, Mr Sims.

Finally, get a load of this dill, at the AFR:

Tony Abbott has been labelled a power price hypocrite by senior colleagues who revealed he recently argued against imposing limits on gas exports and, as prime minister, fought calls by conservatives in cabinet to abolish the Renewable Energy Target.

Mr Abbott confirmed on Wednesday he will cross the floor to oppose any energy policy – including a modified clean energy target – that involved any subsidy for clean energy. Angry colleagues countered by revealing

Mr Abbott spoke out in the party room recently against the government legislating to give itself a trigger to limit exports in a bid to increase the supply and lower the cost of domestic gas.

Australian Competition and Consumer Commission chair Rod Sims said on Wednesday the high price of gas was not only threatening jobs in manufacturing, but contributing to the high cost of electricity.

Mr Abbott, who now maintains that affordability should be the only guiding principle of energy policy, argued against imposing the export limits on the ground of sovereign risk.

“We shouldn’t be ripping up contracts,” he argued. A spokesman confirmed Mr Abbott’s party room contribution.

At the same time, Mr Abbott is now arguing to abolish the RET, a move Treasurer Scott Morrison said again recently would have sovereign risk implications.

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As a nation, if we can’t find it in ourselves to honestly debate and find solutions to this energy crisis, which constitutes the cracking of the foundation stone of our civilisation, then we ^%#@!*.

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.