Do-nothing Malcolm’s sovereign risk shocker

By in Australian LNG, Australian Politics, Featured Article

| 36 comments

Via The Australian:

Bill Shorten asks the same question, hoping repetition will prove effective.

“How much of power bills for Australia has gone up since the Liberals formed government in 2013?”

Malcolm Turnbull admits power prices have gone up since the Coalition won power, much to the delight of opposition MPs.

“They came down significantly when the Coalition came into government and the carbon tax was abolished, Turnbull says.

“We have seen them going up again recently. The reason they’ve been going up is because of the impact of decisions taken by the Labor Party.

“They can wave their arms around and shout as much as they like but it was the Labor Party that allowed gas to be exported without any protection for the domestic market.”

There you have it in black and white. Rocketing gas prices are driving rising power bills. So why is Do-nothing Malcolm attacking AGL instead of fixing the gas price?

Labor is not blameless. It did let the gas go. It didn’t have any facility to do anything else. The gas belongs to the states and QLD decided to ship it out (under Labor as well). Alas, there was no domestic reservation mechanism at the time and the Gillard Government didn’t have the cojones to take that fight on after losing a PM in the mining super profits tax coup that had just almost cost it government.

But the firms also lied. Santos just made stuff up:

As Santos worked toward approving its company-transforming Gladstone LNG project at the start of this decade, managing ­director David Knox made the sensible statement that he would approve one LNG train, capable of exporting the equivalent of half the east coast’s gas demand, rather than two because the venture did not yet have enough gas for the second.

“You’ve got to be absolutely confident when you sanction trains that you’ve got the full gas supply to meet your contractual obligations that you’ve signed out with the buyers,” Mr Knox told ­investors in August 2010 when asked why the plan was to sanction just one train first up.

“In order to do it (approve the second train) we need to have ­absolute confidence ourselves that we’ve got all the molecules in order to fill that second train.”

But in the months ahead, things changed. In January, 2011, the Peter Coates-chaired Santos board approved a $US16 billion plan to go ahead with two LNG trains from the beginning….as a result of the decision and a series of other factors, GLNG last quarter had to buy more than half the gas it exported from other parties.

…In hindsight, assumptions that gave Santos confidence it could find the gas to support two LNG trains, and which were gradually revealed to investors as the project progressed, look more like leaps of faith.

…When GLNG was approved as a two-train project, Mr Knox assuredly answered questions about gas reserves.

“We have plenty of gas,” he told investors. “We have the ­reserves we require, which is why we’ve not been participating in acquisitions in Queensland of late — we have the reserves, we’re very confident of that.”

But even then, and unbeknown to investors, Santos was planning more domestic gas purchases, from a domestic market where it had wrongly expected prices to stay low. This was revealed in August 2012, after the GLNG budget rose by $US2.5bn to $US18.5bn because, Santos said, of extra drilling and compression requirements.

Yet today we’ve got the Do-nothing Government going coal-mad to make political hay instead of forcing the gas cartel to heal to fix the real problem.

There is no avoiding sovereign risk to get out of our energy impasse. Someone has to pay.

We can put it where it belongs, on the gas cartel which carries its share of the blame, and force it to lower prices which will immediately lower power bills. Or, we can quadruple the sovereign risk by putting it where there is no economic nor national interest logic, upon AGL and other coal generators, that simply want to get out of a losing business, and we’ll never lower power bills.

Guess which one Do-nothing Malcolm has chosen?

Comments

  1. Explorer

    The Commonwealth has power under the constitution in relation to exports.
    Than power was used by a Federal Labor government to stop export of rutile mining on Fraser Island.
    Labor could have prevented export of some LNG so that only one LNG train was built.
    While I am sick of the Coalition trying to blame shift on their 4 years of failure, I won’t give Labor a free pass either.

    • Jacob

      Yep. Both sides love losing elections. Over what? Electricity prices. Which were entirely the responsibility of the states. The feds had nothing to do with it and Howard won 4 elections. To be sure, I voted against him 3 times.

      We could have had state-based carbon taxes instead.

      Having 3 layers of government? What a disaster.

    • Grace Hopper

      One requires billions in extraction equipment, billions in storage, billions in transportation in order to get it and move it around. Its very limited, and very hard to find.

      The other literally makes up half the land mass of the country and requires a wheel barrow to dig it up and move it around.

      The problem with smart arses is that they are usually not very bright and their “pithy” comments entirely transparent, despite their self belief to the contrary.

      .

      • The Traveling Wilbur

        Ewwwwwwwww… someone clearly hasn’t had their Guatamalan special blend 43 yet this morning.

        Is that the kind of thing you were referring to?

    • Torchwood1979

      These clowns are looking stupider by the day. Yes, Labor made some terrible decisions regarding the gas “market” but someone needs to tell these clowns they’ve been in power for OVER FOUR YEARS. If they’re still this useless poisoning the well is probably the best long term political strategy they can come up with.

      Imagine if in 1987 Hawke and Keating were sitting around blaming Malcolm Fraser for this, that and everything else.

      • Arrow2MEMBER

        Correct. After about your first six months in power, it cuts no ice with the electorate to blame the opposition for something. None.

        Shorten just needs to keep pointing out how much prices have gone up. That’s all the punters care about.

      • Torchwood1979

        Correct. After about your first six months in power, it cuts no ice with the electorate to blame the opposition for something. None.

        The Libs have a short memory. John Howard won the 96 election in a landslide by simply blaming Keating for everything, but by 1997 the electorate had jack of the blaming and excuses and Howard was a dead PM walking. The political vacuum created by Do Nothing Howard was perfect for Hanson’s One Nation loonies to fill and Kim Beazley just had to sit back, say as little as necessary and wait for the keys to the PMs office to arrive. 20 years later history is repeating, but amplified…

        Ironically Howard salvaged their 98 election prospects by taking a GST to the voters, who rewarded him with a much smaller majority but a second term nonetheless.

      • CarlMEMBER

        While i agree, Arrow , its an argument to easy to shoot down ……
        Federal Labor oversaw the start of the gas train wreck
        Qld Labor stoked the fire on the gas train wreck …….
        SA Labor overseeing highest power prices in developed world ……
        Vic Labor overseeing closure of baseload power driving up prices …..

  5. Jumping jack flash

    “So why is Do-nothing Malcolm attacking AGL instead of fixing the gas price?”

    Both are acts of futility. His “war of words” on AGL is simply to placate the masses after the electricity bills went out late last month after the last price hike.

    His brief outburst where he blamed gas prices is just that, a brief outburst. A rare moment where he revealed he knows full well what is going on yet chooses not to say it. I don’t think the MSM will be able to tear themselves away from the gays and the bachelor to notice.

    The government doesn’t want to meddle in the affairs of private companies operating in a free market economy. It just isn’t the thing to do.

    It also doesn’t want to spook the voters. Who knows what will happen if the great unwashed caught on that the government knows we’ve been headed to hell in a handbasket for the best part of a decade yet chose to shut up because, elections.

    And by “government” I mean the liblabs.

  6. Winston SmithMEMBER

    Yes it’s all the Commonwealth.

    Nothing to do with the manlet Dan Andrews shutting down Hazelwood and banning onshore gas development which would have responded to the price signal in a free market. Nothing to do with S-Jay-W in SA, it’s all the Commonwealth, who in fact have half a brain cell and are trying to stop this energy bill suicide while our emissions are a fart in a hurricane on the global scale.

    By all means support a renewable energy target (or ‘clean energy’ as it’s been renamed; like gay marriage has become ‘SSM’), but at least have the fortitude to accept there’s consequences. Of course, that doesn’t happen for the left, it’s all about feels, and any failures don’t bloody exist!

  8. fisho

    I think it’s time for some honesty: It’s all China’s Fault.
    There I’ve said the unsayable, what’s really changed in our 21st century world is China.
    Why is Natural Gas such a valued commodity in NE Asia? hint China
    Why does Iron Ore still trade at well above it’s year 2000 price? hint China
    Why is coal trading at close to $70/T when the long term averages are more like $10/T? hint China
    Why didn’t Australia enjoy the Economic cleansing effect of the GFC? Hint China
    It’s all about China, our Politicians aren’t managing anything, they’re not improving anything, the reality is they’re useless puppets, guess who’s pulling the strings: hint China.
    Try a few simple questions like, Why does AGL long term Coal contract for Liddell pay only a small fraction of the current spot price for Thermal coal?
    It makes a huge difference to the operations of this Generator if the actual Coal costs are $10/Mwh or $$70/Mwh at $10/Mwh you simply can’t beat coal (other externalities ignored) nothing beats coal at those price. So once again it’s all about China.
    Managing the rate of change in Global Energy prices is the new China Syndrome.

    • RickW-MB

      China manufacturing makes it possible for low intensity electricity consumers to get off the increasingly uneconomic grid power. The supply of low cost components for wind turbines and solar panels, produced from coal generated electricity, also enables the illusion that wind and solar are renewable energy sources.

      Imagine the cost of these wind and solar energy inputs if they were manufactured in Australia. The illusion of sustainability would be dead.

      SA currently supplying 450MW of its 1200MW demand with high cost gas generation. The State’s sole reliance on gas since Hazelwood closed has guaranteed higher prices.

      SA is close to the end of the road. It is building all this extra capacity that consumers have to pay for but the number of consumers are reducing. It is in the death spiral. The spiral will be spinning even deeper into despair as Labor in Victoria ramps up its planet saving effort loading more wind and solar onto the grid thereby limiting the opportunity for SA to export when the wind blows. Other states will also be producing a greater share of the LGCs so LGC prices are bound to fall, further eroding the income of the SA grid connected wind and solar.

      There is no planning in any of this. It is all reactive. If there was any planning then there would be no intermittent generation allowed on the mainland network and there would be modern coal generation replacing the aged units.

      • fisho

        Imagine the cost of these wind and solar energy inputs if they were manufactured in Australia. The illusion of sustainability would be dead.
        True very true, but imagine the cost of Coal in Australia if the Renewables fairytale were to really become truth.
        Surely if this story is true than these smart Chinese businessmen building all these marvelous Solar power systems would insist that they be deployed in China first. Surely the factory that builds PV panels would understand, better than anyone, the energy cost advantage of electricity derived from PV and would be already powering their plants with PV derived power. In this case nobody would want the black stuff, there would be no global market for coal (especially not in China) and we’d revert to a mining environment where only the best and easiest to access Australian coal was ever mined. If this were the market reality than coal would once again be unbelievably cheap, think single digits per tonne and guess what Australia would be logically burning the stuff to make cheap Electricity.
        In short the renewables market is one giant lie built on the sweat of Chinese workers and powered by the burning of Aussie coal. In the end analysis it’s all one giant arbitrage play both fueled and financed by Chinese growth.

      • fisho

        It’s a death spiral! you’ll get no argument from me, the death spiral is well under way in SA.
        Look at all the regulatory changes happening in SA, none of this stuff is cheap and yet each step they take to increase grid reliability just bumps the price by another few cents/kwh thereby making off-grid the obvious decision for anyone with a choice, it’s a death spiral.

  10. Simone

    Someone here (yesterday?) suggested to just get on and build or float a couple of LNG import terminals off the coast. This sounds the least-messy option, avoids sovereign risk and is the most cost effective (contract termination multiple parties, litigation, compensation etc into the billions)

    The next biggest issue to fix is the distortion to energy supply generated by RET CET and politicians everywhere. Comment from Turncoat:

    https://www.macrobusiness.com.au/2017/09/agl-not-want-sell-liddell/#comment-2953187

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