Manufacturing lobby embraces suicidal gas benchmark

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From the AIG:

“The ACCC’s latest gas market update confirms that the gas crisis has shifted down a gear since early 2017 – but it also confirms Australian industry’s concerns that we are still far from affordable energy,” Australian Industry Group Chief Executive Innes Willox said today.

“More supply is clearly being made available in the aftermath of the Prime Minister’s deal with the gas exporters, and the prospect of a supply crunch in 2018 and 2019 is receding. This is an important advance – we are unlikely to see an absolute shortage of gas supply leading to industry closures or power generator shut downs.

“However, while the retail gas prices facing industry have clearly fallen from the extraordinary highs of February, they remain twice to three times their historic average. Prices still seem to be well above export parity.

“We are hopeful that as new gas supply agreements work their way through, prices will fall further. It should never again be more expensive to buy gas in Eastern Australia than it is in the East Asian markets we export to. But the new normal will still be uncomfortably high for the foreseeable future for many of Australia’s foundational industries. This challenge is not going away,” Mr Willox said.

This is what happens to the export net-back price as the AUD falls to 50 cents over two years:

Forget export parity. We need fixed price domestic quotas for gas to offset the Curtis Island cartel or the next energy shock comes at the worst possible moment.

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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.