Via The Australian:
Malcolm Turnbull has savaged Tony Abbott’s proposal to forcibly acquire the Liddell coal power station, declaring such a move would be against the values of the Liberal Party.
The Prime Minister ruled out a compulsory acquisition of the ageing power station in the NSW Hunter Valley, although he signalled his hope that it would stay open until Snowy 2.0 is operational in 2025. AGL plans to close the plant in 2022.
Mr Turnbull said he was encouraging AGL to sell Liddell to one of the companies interested in buying it, arguing the Liberal Party was founded with the intention of stopping nationalisation.
“We are talking to the company, we have some buyers who are interested, they said they will consider their submissions, but this talk about strong arming and nationalising assets that is not the way we operate,” Mr Turnbull told The Daily Telegraph’s Miranda Devine Live.
“Nationalising assets is what the Liberal Party was founded to stop governments from doing. One of the great motivating factors behind the growth and the victory of Robert Menzies was in 1949 stopping the Labor Party from nationalising the banks.”
So, when should an energy asset be nationalised? Obvious only in extremis but what are the conditions? There are two. Either:
- national security is jeopardised (by foreign ownership, terrorism etc), or
- economic security is threatened by market failure.
Liddell does not qualify under either scenario. It’s locally-owned and when it closes there will still be plenty of power, via Ben Potter:
We’ve already seen ex-PM Tony Abbott and his small gang of coal warriors bent on doing untold violence to the truth by falsely asserting that building new coal fired power stations is the best way to restore affordable and reliable power.
No expert authority – not the Finkel review of energy, not the Australian Energy Market Operator and the Australian Energy Markets Commission – supports this view. It’s just the way a bunch of non-experts with an axe to grind against the Prime Minister feel.
We’ve also seen energy minister Josh Frydenberg verbal the Australian Energy Market Operator’s views on whether the closure of the AGL Energy’s Liddell coal power station in 2022 will threaten the stable supply of power to the eastern states’ grid.
AEMO’s bottom line is it won’t if AGL Energy and other power investors get to carry out their well publicised investment plans; and the main thing that could stop them from doing so would be the government sticking its oar in.
Quite right. Would keeping Liddell open help lower prices? Obviously not or AGL would do it (given the investment in it would offer greater returns than the alternatives).
But there is another power asset that does tick the boxes for part or full nationalisation. It is the real cause of the east coast power shock, is run by firms that have outright lied about their investment metrics to regulators, have trashed their social licence to operate, is foreign-owned (increasingly Chinese) and has triggered a total market failure.
No, it’s not banks. It’s east coast gas.
The Australian reported on the crazy STO bid yesterday:
Former Woodside Petroleum and Seven Group chief Don Voelte says the Cooper Basin could be seen as a strategic national asset in Foreign Investment Review board deliberations on Harbour Energy’s $13.5 billion Santos takeover bid, and that it may make sense for Scott Morrison to require it be sold separately.
…Mr Voelte said he did not think the deal would be blocked — like Shell’s bid for Woodside was in 2011 — but said asset sales may be required. “The government is going to want to make sure that all the Cooper Basin gas isn’t siphoned off into the (Gladstone LNG) gas plant and taken to foreign shores, and that there’s enough gas left for domestic and industrial consumption in Australia,” Mr Voelte told The Australian.
The Santos-run GLNG plant buys some of its export gas from domestic markets and is still not running near full capacity.
Let’s recall STO’s role in the formation of the east coast gas cartel:
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.
“At the time of FID (final investment decision), there was a reasonable expectation during the early years that gas would be available in the market at the right price,” Mr Knox said. “However, large volume, long-term east coast gas supply and prices have tightened over the last 18 months, making third-party gas a relatively less attractive gas supply. This is what led to our announcement (that capital spending would increase).” For commercial reasons, Santos had not revealed the volumes of third-party gas needed to feed the second train.
Presentation slides reveal that by then, even with the $US2.5bn of extra spending, third-party purchases had grown from 140 terajoules a day, at FID, to 240 terajoules a day, or 20 per cent of east coast domestic demand.
It is insane public policy for the owners of STO to be allowed to reap a rentier gain on the sale of this gas. If anything, STO should be nationalised for triggering the collapse of the east coast energy market. It lied about having enough gas for a vastly over-inflated LNG plant. Even today it ships large quantities of cheap third party gas offshore at huge losses. And it makes that up by applying discriminatory pricing to the entire east coast economy thanks to its own engineered supply shortage. In turn, that has trashed Australia’s decarbonisation plan which relied upon gas to displace coal as renewable storage catches up.
It really doesn’t matter who owns STO assets so long as at a minimum we:
- install gas reservation that keeps 10% of current east coast exports here;
- if prices don’t fall enough then fix them at $5Gj.
That will put the costs of the LNGer’s huge capital mis-allocation where it belongs, crash gas and electricity prices, and put our decarbonisation plan back on track.
