At The Conversation we find joyful (24 hours late for you guys):
Bill Shorten will turn the energy spotlight onto gas on Monday, proposing measures Labor says will put downward pressure on prices for manufacturers and power generators and so benefit jobs and households.
A Labor government would introduce a permanent gas export control trigger that could be pulled when prices were too high, not just when a shortfall is forecast. The government’s trigger is due to expire in 2023.
Shorten, making the announcement, will say the present trigger is too weak because it doesn’t have to be activated when prices are high. He says this disadvantages local manufacturers and jobs.
“We don’t want local jobs to go overseas with our gas,” he says in his statement.
Under Labor’s plan, “if prices are too high – based on a benchmark set by the Australian Competition and Consumer Commission – then the trigger can be pulled to enact export controls. This can include putting third party gas supplies back into the domestic market to drive down prices, rather than allowing them to flow overseas”.
In other measures an ALP government would:
… boost supply for domestic use with a “national interest test” applying to all new LNG export facilities or significant expansions of existing ones. This would make domestic use a consideration in the approval of such projects.
“The ‘use or lose it’ provisions will also be strengthened, encouraging companies to develop gas reserves rather than just sitting on them with the contracts rolling over,” Shorten says in his announcement.
… the ACCC would be given new powers to monitor prices and act against anti-competitive behaviour, and to bring more transparency and competition into the market.
Labor would appoint a panel of experts, the Domestic Gas Review Board, to oversee the national interest test and the permanent gas export control trigger.
“We will work with manufacturers and industry on the implementation of Labor’s plan to build a sustainable gas industry, including an export industry, that operates in our national interest and puts Australian jobs and gas users first, ” Shorten says.
He says the government has preferred “ineffectual and unenforceable handshake agreements” with gas exporters over real action.
“Last year the Liberals set up a weak temporary trigger to control gas exports and didn’t even pull it despite Australian manufacturers still paying more for gas than the ACCC says they should be paying,” he says.
He says the ACCC’s Gas Inquiry Interim Report of last December set a benchmark price of between $6.55 a gigajoule and $9.93 a gigajoule, but Manufacturing Australia says its members are being quoted prices of between $10 and $12 a gigajoule.
All good news and good policy bar one thing. The disastrous ACCC has been the prime regulatory failure in this mess and it should not be beefed up but shut down. The Australian “Competition” and “Consumer” Commission was primarily responsible for the formation of the gas cartel in the first place so asking it to run policing now is bit like asking Ronald Biggs to run your treasury. The ACCC:
- did nothing at all as the cartel grew;
- waved through mergers that made it worse when Shell bought Arrow, and
- protected the cartel by crushing discussion of domestic reservation when it was tasked with investigating the failed gas market. It recommended instead that we free up supply when that supply is too expensive to matter, is locked up by force of community will, and would have gone straight offshore via the cartel anyway.
This was a case economic idiocy so great that it deserves to coin a new term: economoronism. Even when the Turnbull Government was finally goaded into action by MB – as we illustrated that consumers were paying more for their own gas than were their Japanese brethen many thousands of miles distant from the source – ACCC economoronism intervened and ensured that reservation prices would be pegged at export net-back thereby guaranteeing no competitive advantage for those using it at home.
Whoever does run the mechanism should peg its price ceiling at $5Gj. The cartel has the gas that will be profitable at these prices and it can ship the rest.
Predictably, the cartel is unimpressed on its hotline to the AFR:
Santos chief executive Kevin Gallagher has gone on the attack over federal Labor’s pledge to introduce a domestic gas price trigger for slapping curbs on LNG exports, warning that such controls will only force smaller gas producers out of the market and deter investment in new fields.
…MST Marquee analyst Mark Samter…”One has to seriously question the implications for the whole economy of being too draconian on a gas industry that has already felt huge financial pain in getting to where they are,” Mr Samter said, pointing to the $US80 billion-$US90 billion that was “poorly” sunk into the Queensland LNG industry.
But Mr Samter pointed out that the “netback” price for LNG at Queensland’s gas hub – representing the export price for gas less processing and transport costs to Asia – is now over $13 a gigajoule, translating to over $15/GJ in the southern states, including transportation.
Drivel. If the net-back price is now $15Gj then prices are plenty high enough to trigger new investment for export volumes. All reservation does is ensure that the cartel’s cheapest and most profitable volumes do not go offshore. This includes very cheaply produced gas from third parties purchased by the cartel because it does not have enough of its own reserves despite promising that it did during construction of the LNG plants. Remember the Santos confession, at The Australian last year:
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.
If the cartel loses on its $90bn then too bad. It over-invested in LNG capacity during a crazed bubble and lied about having enough gas as it did so. It should pay the price for such stupidity, not everyone else by allowing it to corner the market. If it refuses to play ball then give it fixed price quotas for local production and threaten expropriation. The cartel’s behaviour deserves no less.
As for the gas imports solution, it is complete balderdash. By definition LNG imports are more expensive than local given they add regasification costs as well. If the export-netback price is today $13Gj in QLD then the import price in VIC will be that plus transportation, regasification and a margin, coming in somewhere around $18Gj.
If imports are allowed then they will become the marginal price setter at even higher levels and the export cartel will not sell gas below it. It’s just another reason for reservation not an argument against it.
Meanwhile, chaos politics is throwing up the delightful prospect of an energy sector policy war. Is there a god after all? From The Australian:
Bill Shorten says any royal commission into energy prices must include an analysis of whether privatisation of electricity assets has caused prices to go up.
The Labor leader was responding to comments from Prime Minister Scott Morrison, who this morning said he agreed with his Energy Minister Angus Taylor that the big energy companies are as bad as the big banks and that he is open to a royal commission into the power industry.
The idea of a royal commission into the energy sector was floated by Mr Morrison’s Liberal leadership rival Peter Dutton two weeks ago.
Asked this morning whether he wanted a royal commission, the Prime Minister initially said: “No, not at this point,” but went on to say: “I’m open to it though, and I’ll look at it.”
If the jingling minstrel calls a royal commission into energy I will eat his favourite block of coal. A royal commission into energy firms would send a probe into the inky blackness of coal uber-billions, shining a torch into the very deepest trenches of Australian power where the leviathans of capital lurk. The fightback has already begun, at the AFR:
One MP said while everybody understood the political imperative behind the push, there was concern about the forced divestment powers, which even the ACCC did not recommend. The MP said if the government were to go down this path, it would have to be a power granted to the courts, not a single minister or even the cabinet.
“It needs to be a legal process,” the MP said.
Another MP with similar concerns said it was recognised among the group that a failure of regulation over the period of successive governments had allowed the energy price crisis to develop, be it the establishment of the National Electricity Market, the lack of powers given to the ACCC, or failures by the Australian Energy Regulator and the Australian Energy Market Operator. In that sense, more regulation to fix the mess was warranted but “we will be watching very, very closely”.
So that is forlorn hope. But in the meantime the Coalition is at least waving one of its several severed limbs at the problem keeping some pressure on.
