It’s the usual complete drivel on gas in the press today, from Phil Coorey:
Gas companies only have to look at the pressure being heaped on the banks and AGL Energy at the moment, should they still think the government is bluffing on its threat to intervene in the export market.
This is an offer they can’t refuse.
The immediate reaction to Malcolm Turnbull giving the gas giants final notice was largely cynical.
Turnbull has been talking for some time about pulling the trigger to intervene in the export market and ensure adequate supply for domestic use.
And gas junket queen, Jen Hewitt:
It’s political put up or shut up time for Origin, Shell and Santos. The Turnbull government is making it clear these big LNG exporters have to quickly come up with a convincing plan to supply much more gas at lower prices to Australian businesses or face the consequences – export restrictions.
The Prime Minister is now armed with yet another damning analysis from Rod Sims, the new anti-hero of the gas industry, as well as the Australian energy market operator, confirming the extent of the domestic shortfall expected next year.
And gas apologist Judith “I bat for Santos” Sloan:
There is a deep inconsistency in the government’s stated view that to ditch or pause the renewable energy target would introduce an unacceptable element of sovereign risk but to impose restrictions on gas exports is just fine.
In point of fact, the government has this one completely the wrong way around: freezing the RET would affect only future investments in renewable energy, whereas imposing export restrictions affects past investment decisions that were sanctioned by government.
And there is another important point here: the RET specifically excludes gas as a transition fuel. It was hardly surprising that the gas companies would seek alternative markets other than the domestic generation of electricity.
…There are two principal reasons that the Prime Minister and Energy Minister are close to panic on this topic. Both of them understand the radical nature of the intervention, particularly for a Coalition government.
The first relates to the pressure higher gas prices and low availability will have on direct users of gas for industrial purposes. Think here large factories, high-paid workers. The second is the impact of gas prices on the wholesale electricity price as gas is increasingly the marginal source of supply.
From about 12 per cent less than three years ago, gas is setting the wholesale price in close to a quarter of cases now. With the exit of so much coal-fired baseload in recent years, the price being paid for intermittent renewable energy is increasingly high-priced gas setting the wholesale electricity price, something that greatly concerns the government.
So Jude, gas is excluded from the RET and therefore should seek higher prices elsewhere. Yet, gas consumption is through the roof thanks to the RET as well? Make up your mind, girl.
Nobody is going to argue that energy is not a mess. I’m not even going to argue that there isn’t some sovereign risk in the solution. The truth is simply that the mess is so large that the solution needs to be of equal magnitude. There’ll be pain for some. Too bad.
After years of politicising the issue, the AEMO and ACCC have finally driven Do-nothing Malcolm to the real problem. The Australian decarbonisation plan was always to use more gas for base load power to supplant coal as renewable tech caught up. It was a good plan. The same one adopted worldwide. The only thing that went wrong with it was a cartel got hugely over-excited and blew an LNG bubble that started shipping all of the gas offshore, leaving us short.
The same cartel is now killing pensioners and factories with higher energy prices. So, the best solution (the only one for a decade) is to crush the cartel.
Now we have identified the real problem and the end-solution, what is the best path to getting there? This needs to be staged and will take time to deliver properly. It needs to address demand, supply, market structure and sovereign risks.
How are we doing on these then?
In the short term, Do-nothing Malcolm has installed a gas reservation mechanism. Good. But it is too short term in nature and not broad enough, leaving it open to constant political battling. Moreover, Do-nothing appears to like being the limelight fighting the gas giants. Today’s “one last chance” has nothing to do with managing sovereign risk. On the contrary, it is exacerbating it as the market now swings on the opaque conversations between an attention-deficit PM and executives. Which side of the bed will they get out of each day, we might ask? Today it’s all soothing blah:
Exxon confirmed it was expecting a dramatic 26 per cent drop in Bass Strait gas production from record levels this year that will extend to 2020.
This will put production at the nation’s biggest domestic gas producer, which last year supplied 19 per cent of east coast demand, back down to levels it was at from 2011 to 2015.
…The Australia Pacific LNG plant, 27.5 per cent-owned by Origin, said it was actively marketing more gas for domestic markets.
“We plan to review the AEMO data and consider what APLNG can do to help make sure the domestic market has the gas it needs in 2018,” APLNG chief Warwick King said.
Origin said it would also look at other measures outside the APLNG project.
“We are committed to meeting customer demand for gas and we are actively working to bring on more supply for 2017-18,” said Origin’s energy supply and operations head, Greg Jarvis.
Shell, which runs the Queensland Curtis LNG plant, said it would sell between 75 petajoules and 90 petajoules of gas into the domestic market this year, up from 50 petajoules in 2013.
…Santos, which will bear the brunt of export controls under the Domestic Gas Market Security Mechanism in its current form, declined to comment.
But not even I can make head or tail of those figures. No, this to and fro conversation is ridiculous. The lower risk path is simply to pull the reservation lever hard, set a reservation target, and let the market meet the criteria in any way that it sees fit.
For the longer term nothing has been done. But it will need to be. To prevent this destructive gas war from transpiring every year, the gas market has to be permanently restructured. That requires much more policy than Do-nothing Malcolm swanning in front of the cameras:
- larger domestic reservation;
- harsh lose it or lose it laws for reserves;
- a domestically-focused national gas company to force acquire or expropriate reserves as required and develop them in ways that assuage community anxiety about fracking at the state level, as well as benchmark prices in the market via mandated margins;
- tougher pipeline regulation.
The cartel must be brought to heal with competition and appropriate regulation, then it can go about its business unmolested.
