Every single day the gas cartel reaches into your wallet

Via The Australian:

In documents submitted to the Victorian government this week, AGL said it wanted the Crib Point import terminal, 65km southeast of Melbourne on the Mornington Peninsula, operating in the first half of 2020.

“Victoria, and the other states – South Australia, New South Wales and Tasmania – that rely heavily on gas production from Victoria, continue to have a threat to security of supply and exposure to a gas shortfall from 2021 if there is not a significant discovery of, or significant investment in, new sources of supply coming to market,” AGL said in an environmental effects statement (EES) filed with the Victorian Planning Department.

The plan will help “maintain security and stability of gas supply, and keep downward pressure on prices”.

How? The Asian import gas price is currently around $14Gj while the local price is $9Gj. US LNG could arrive for about $12Gj but that price is clearly going to converge with Asian spot price over time (it already has). Then Australian LNG importers have to add $2-3Gj for the amortised cost of the plant and a profit. That means that imported gas will today cost $14-17Gj versus the current $9Gj under domestic reservation.

In short, the only way that LNG importers can make money is by destroying the domestic reservation mechanism currently holding down prices. The moment gas imports begin and the reservation mechanism is killed the gas export cartel will refuse to sell gas below the import price.

It gets worse. Asian gas markets are also expected to tighten over the next five years and prices rise to $20Gj. The Australian dollar is also going to keep falling. With the housing and mining booms over and continuing to deflate over the next decade, non-mining tradables will be the only way for the economy to grow so the AUD will fall right back to 50 cents (and below if the deflation turns disorderly). Every time that the AUD falls, the imported gas price will rise.

The very plausible indeed probable scenario, then, is for an Asian gas price of USD15 and AUD at 0.50 cents delivering Australia an import LNG price of $30Gj plus costs and a margin. That’s 350% above today’s price and 1000% above historic average prices.

It gets worse. Gas sets the marginal cost of electricity in the National Electricity Market (NEM) and the further into decarbonistion that we get the more it will do so as gas-fired generation replaces coal-fired for base load and gas peaking is used more often with rising renewables. A $33Gj gas price will cause electricity prices to at least double across the entire National Electricity Market.

In this scenario, LNG exporters will be making good profits from their exports but gigantic profits from their local sales. The cartel’s gas will be coming out of the ground at $3-8Gj all-in cost yet it will be selling it locally for $32.99Gj. Australian households and industry will be living through an extended energy shock recession. The same scenario represents political chaos.

This is utter madness. The entire media should be outraged by it for not just Australians but their own profits:

  • It will smash the most vulnerable working class Australians as they freeze or boil to death in their homes rationing both gas and power. Yet a left-leaning The Guardian never talks about it.
  • It will destroy Australian real estate markets yet the hopelessly property-dependent Domainfax never mentions it.
  • It will shatter industry yet the AFR defends it owing to “sovereign risk”. What about risk to the sovereign?
  • It will drive ceaseless political chaos yet The Australian prints many defenses of it.

Eventually demand destruction of industry, a mass exodus of households and businesses from the grid and new gas supplies will lower gas prices. But only slowly as new gas will also be sucked straight offshore first.

We have no fewer than seven ex-prime ministers floating around pushing different interests while this transpires. The last four of them were, in part, destroyed because of energy prices. One of them must step into the breach and lead the discussion. The ABC should be talking about it every, single day. If social justice is what it wants then it must fire up this debate and get behind gas reservation editorially.

EVERYONE on the east coast of Australia will lose if the gas cartel is allowed to add LNG imports to LNG exports and destroy domestic reservation. Gas is the key input price into our entire energy system, the bedrock of the economy. Without reservation we will be an income-depleted Banana Republic that cannot escape its own resource dependency because the lower the currency falls the less competitive we will get. 

Domestic gas reservation must be formalised now. Make it permanent with a set price of $6Gj. The gas export cartel will still make money just not nation-ravaging rents.

Every day the gas cartel reaches into every wallet in eastern Australia yet nobody seems to care.

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)

Comments

  1. “Without reservation we will be an income-depleted Banana Republic that cannot escape its own resource dependency because the lower the currency falls the less competitive we will get. “

    So what? As long as house prices can keep going up, though, nobody will care.

    Anyhow, what happens on gas will be instructive for the direction of the property bubble. If we get saddled with import terminals, that’ll be a clear demonstration of a government that continues to be unable to make any hard decisions or take any immediate pain or flak. The consequences are obvious for the property bubble.

    That’s the outcome I’m leaning to. It’s the Strayan way – full speed into oblivion.

  2. What are you going on about? There is plenty of gas which can be developed for much less than $33/GJ (such as beetaloo). No way prices end up there.

    • They’ve already been to $20Gj. They can end up at $30Gj no problem at all.

      If more supply comes on then it goes offshore first then can eat away higher prices.

      There will also be massive demand destruction and flood of households going off grid.

      Doesn’t change the dynamic. LNG imports are mind-numbingly stupid.

  3. reneweconomy.com.au does not care because they see gas as the enemy – even though batteries are not cheap enough yet.

  4. If people want gas and electricity they can get a better job, or perhaps a second job. Plenty of people in Asia are prepared to work two jobs to afford energy.

    Same goes for food.

  5. truthisfashionable

    I heard about this company aiming for a new grid scale storage, which could be more efficient than big batteries. The interesting part is that you can use the heat created directly into a business.
    https://1414degrees.com.au/what/

    “Our patented Thermal Energy Storage System (TESS) takes electricity from any source, the grid or renewables, and stores as latent heat in molten silicon at 1414° Celsius.”

    It’s good to see new ideas and technology being tested and rolled out… Once grid scale storage of renewable energy sources is sorted the gas price problem will be just another blip on the list of stupid Australian decisions.

    • Strangely, their address is in SA. scams typically come out of QLD.

      Anyway, solar thermal isn’t really new. Remember reading about it a decade ago at least. They were heating up/melting some salts at the time….

  6. I’m almost at the point of not caring if this happens. The sooner something breaks the sooner the re-building can begin.