The AFR thinks so:
If factories fall silent in eastern Australia because they are short of gas, then the Coalition will likely follow them out the door at the next election. That’s the only plausible reason why a Liberal-led government is now doing the illiberal things that it is.
ACCC chairman Rod Sims this week accused the east coast gas giants of doing too little to help out domestic gas supply. That all but gives the green light to Prime Minister Malcolm Turnbull to activate the Australian Domestic Gas Security Mechanism in January. A decision is likely in the next few days. In effect, major private companies will be retrospectively directed on who they can sell their product to.
…Those would be the people that spent $60 billion on capital investment on LNG plants in Queensland, and the coal seam supply that only exists in the volumes that it does – expanding from 100 to 1200 petajoules – because the export dollar underwrote it. And the $8 billion in export revenue that Australia gets for the world-first use of coal seam gas for export LNG. Or the fact that Queensland is self-sufficient in gas while other states chose not to be, and relied on others instead. Indeed, LNG exporters Origin and Shell are now big net contributors to the domestic market. The Santos-led project is also using its position in the market to secure more domestic gas. It’s not clear why these companies would now want to destroy their domestic customers.
And via The Australian:
So, the phone went on the talkback line and it was Kathleen from Canberra. The host, 2GB’s Ray Hadley, said: “Hello, darling”, because that is just the way he is. Kathleen said: “Hello, Ray. I just want to ring you and let you know I got my gas bill.”
…“I’m living alone on a single pension,” she said, in a tone enhanced by an endearing first-time-caller quaver. “My husband’s in a nursing home. He’s got dementia, so things haven’t been good this year, and I’ve been worried and worried and worried (yes, she said it three times) about this gas bill, and anyway, it came yesterday.”
And how much was it?
“$896.”
Can you believe that? A touch under $900 a quarter, or almost $4000 a year for an elderly woman living alone on the pension?
“And how much is it normally?” asked Ray.
“Less than $500 normally, and that was when there were two people,” said Kathleen, “and I admit, it is freezing cold in Canberra, and my health isn’t good. I have to keep the heater on overnight. But I haven’t had it on high.”
There’s plenty of hyperbole here from both sides. But the contrasting articles do hint at the appropriate framing of the debate. The AFR is happy to defend gas “markets” no matter the cost. The Australian is illustrating that those gas “markets” have failed ordinary Australians.
This encapsulates everything that is wrong with the contemporary discussion of liberal democracy. Markets are not some pure and perfect figment of objective economic truth. They are social phenomena that can deliver both the best and worst of human beings to the collective. For the most part it is best, but when competition fails it does so spectacularly.
And that is what has happened in the Australian gas “market”. It has failed so completely that we are literally killing our own economy (and people) in the name of nothing.
To wit, the $8bn in export revenue that the AFR claims is so valuable is, in fact, a giant profits suckhole. All of the LNG project that ship the gas make huge losses on every tonne that they export. Presently they are shipping gas at around $8mmBtu but their breakevens hover around $12mmBtu:
Nor is this going to be short term as the AFR suggests. The global gas glut that the LNG bubblers created is now so large that it won’t disappear at all through the 2020s:
Nor will the oil price save LNG prices even if it does rise. As India just so nicely demonstrated at Gorgon, the gas glut enables customers to break contracts and demand new discounts relative to oil prices.
The LNG projects are recouping these huge losses by charging discriminatory prices at home where bulk contracts for gas are being offered at $12-15mmBtu, via the ACCC:
This is up from $3mmBtu just a few years ago. And because gas sets the marginal cost of electricity, it is also the primary driver behind power price hikes as well, dramatically exacerbating the economic damage and destroying the national decarbonisation push via the political wreckage.
Finally, the LNG players do all of this while paying no tax because they lose so much money!
In summary, then, the LNG “market” that the AFR seeks to protect is extracting Australian gas to sell it at huge losses overseas, has flooded Asia to such an extent that they’ve cut prices by 60% for decades, is boldly charging up to double here for the same gas, that has hiked electricity costs bankrupting businesses that are actually profitable as well as killing pensioners, while paying no tax and derailing Australia’s decarbonsation program that is designed to help save the species from extinction. Yet the AFR concludes that if we fix this gargantuan mess:
There will be a cost. We have already made our resources projects expensive compared with our rivals because of the costs that were allowed to build up during the boom. What we did have going for us was minimal sovereign risk. But the prospect of retroactive rule changes changes all that. It’s understandable why that issue is now secondary for a desperate government, but it will bite us all the same.
Yes, there will be a cost. It will be measured in lower energy prices, higher general profits, higher tax takes, more people living for longer, less carbon pollution, more effective politics and the hope of a future for the planet. It’s probably worth paying.
That the AFR can’t or won’t see this is a calamitous intellectual failure that invites into existence the very political economy systems that it purports to resist, socialism and central planning, which would have done a much better job of managing this resource with its eyes closed. Moreover, when the community watches on as a cartel ravages a broader economy like this it is very likely to turn to anti-market political solutions that pull it into line.
Gas is a simple market failure that needs to be fixed. It should be called out as such. It doesn’t mean all markets are bad or good and only a dill would say so.
Today we get the good news that the gas reservation mechanism may indeed be ramped up as MB has campaigned for, also via the AFR:
The government’s crackdown on east coast LNG exports looks set to be broadened to capture the multibillion-dollar export projects of Origin Energy and Shell to prevent much-needed local gas being sold off cheaply in Asia.
The widening of the looming export controls beyond Santos’ $US18.5 billion ($23.22 billion) GLNG venture would be in line with last week’s blunt criticism by competition chief Rod Sims of Queensland LNG exporters shipping gas to Asia’s cheap spot market and “starving” domestic manufacturers.
The government is expected to declare as early as Tuesday a “shortfall” in the east coast gas market for 2018 under the new Australian Domestic Gas Security Mechanism.
One source said the volume of extra gas the government will declare is required for 2018 will be about 50 petajoules, with the possibility it could be increased to more than 100 petajoules given expected increased demand for gas for power generation to avoid the risk of blackouts.
That would represent between 7 per cent and 15 per cent of the east coast market, a huge volume that sources say may well rein in soaring prices for industrial users but could have significant repercussions in the local industry, including killing off emerging new gas field developments in the Bass Strait, Cooper Basin and elsewhere.
It may be that the mooted LNG restrictions on the east coast are 7-15% of Curtis Island volumes. But they are only 2% of our total gas exports. A lousy 2%!
When a failed “market” serves only to destroy the local economy and people it tears up its licence to operate and should have it revoked, plain and simple.
