God save us from the ACCC on energy, via the AFR:
“Get ready for mass job losses,” Garbis Simonian, managing director of NSW gas user and wholesaler Weston Energy, said of prospects for gas prices to rise beyond the present level of about $10 a gigajoule, which is already straining many buyers.
…”We certainly don’t oppose the [proposed LNG import] terminals – they are bringing supply into the market – but that supply needs to be at a price that meets the needs of end users.”
…JPMorgan estimates Asian gas imported into Australia would cost $14.73 a gigajoule at present LNG spot prices, or $11.52/GJ for US gas. That compares with a $9.24/GJ average at the Wallumbilla gas hub in Queensland last month.
…Australian Competition and Consumer Commission chairman Rod Sims voiced hope that LNG imports would at least cap the price of east coast gas.
“They certainly can’t do any harm, because if they go ahead and people buy the gas they are going to be people who can afford those prices and hopefully that diversion of gas can mean lower prices for others,” Mr Sims said.
…Senator Canavan said the government’s intervention had helped to lower gas prices and declined to comment about hypothetical higher gas prices in future, while acknowledging the difficulties caused by present prices.
LNG imports will do enormous harm. Note that on the above quoted prices (use the Asian price not the US one given suppliers will use that benchmark) imported LNG is NOT viable today. Indeed it is out of the money by $5.50Gj and that’s before we add regasification costs.
The only way to make the import terminals work financially is to destroy the policy that is holding domestic prices below their breakeven costs: reservation. Once reservation is gone then imported LNG will be the marginal cost supplier and prices will rise accordingly. Any displaced volumes of locally supplied gas will flow immediately offshore via the export cartel which is operating well below capacity or will simply be withheld until customers pay extortionate prices up to the import price.
Adding an import cartel only embeds Asian prices at home. I don’t fear a tightening Asian market for gas but the AUD is going to fall another 30% yet and that will drive the import price of LNG to $20Gj all by itself. If I’m wrong about the gas market tightening then that could be $30Gj.
The ACCC is supposed to be the expert regulator of market failure, cartel conduct and competition. Yet it does not appear to have the faintest understanding of how monopolies, discriminatory pricing and rent-seeking businesses work in the real world. It is a catastrophe.
All we need is stronger domestic reservation, like WA where gas is $4Gj. Use quotas if need be. Break export contracts. Do it now. Once the LNG terminals are built, policy will be railroaded.
The one upside to all of this is that the ACCC’s massive gas tax, collected and kept on its behalf by the cartel, will drive an ongoing boom in renewables as everyone who can will abandon the trashed National Electricity Market.
But that is small comfort to large scale gas consumers.
