The gas cartel is a direct threat to national security

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Via The Australian:

Gas prices on Australia’s east coast are set to surge by up to 70 per cent over the next decade with the southern states forced to rely on LNG imports to get through peak demand in winter, consultancy Wood Mackenzie has warned.

Prices for gas could surge to between $14.30 and $15.90 a gigajoule by 2030 for Australian users from a forecast $8.50 to $11 price next year without further exploration and lower costs of developing new supply sources. Prices will rise to between $10.70 and $12.70 a gigajoule by 2025 reflecting a tightening Asian LNG market.

Extra gas will need to be diverted from Queensland LNG producers into the southern markets by 2025 or earlier to meet winter demand with exporters to come under pressure to cut purchases of third-party gas to ensure enough is available for local users as conventional fields in Victoria, NSW and South Australia decline.

“The Queensland LNG export projects have shattered the east coast’s ‘cheap gas forever’ mentality,” Wood Mackenzie’s director, gas and LNG research Nicholas Browne said in a report. “We believe Australia’s domestic gas price is now inextricably linked to the global LNG price.”

It’s going to shatter a lot more than that. It’s actually much worse than WM figures. It looks to me like they’ve used a long term AUD price in the mid-70s range. The currency is going to fall much further than that as China slows and bulk commodities wilt over the forecast time frames. That means the forecast local gas prices could easily rise by another 40%, just when it is supposed to help rebalance Australia to non-resource exports.

Madness is piling upon lunacy this morning in Australian energy markets as the insane ACCC gives away APA Group:

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The competition watchdog has approved Hong Kong-based utility firm CKI’s $13 billion takeover bid for gas pipeline company APA.

CKI, originally known as Cheung Kong Infrastructure Holdings, and Power Assets Holdings lobbed an all-cash offer of $11 a share for the Australian gas pipeline giant in June. APA’s board last month unanimously backed the offer.

The Australian Competition and Consumer Commission said on Wednesday morning it found the takeover would not impact competition in what was already a monopoly market. APA owns around two-thirds of all the major gas transmission pipelines in Australia.

It’s a monopoly with rents attached. One of the solutions for the broken gas market is to change how this thing is regulated to drive down its returns. Yet here it is being sold to Chinese interests adding another layer of sovereign risk to any potential solution. That is, making tougher regulation all but impossible.

While government is busy tearing itself apart, and the ACCC has its head in some test tube somewhere, markets are setting the parameters for Australian energy prices for decades to come. Everything that is happening is only guaranteeing higher prices.

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This is the unfolding disaster in black and white for every government on the east coast and in Canberra. A rolling energy shock as far the eye can see rendering the polity ungovernable as standards of living are trashed and the decarbonisation process disintegrates into an orgy of rent-seeking. As the gas cartel creams it, it will be able to blame government after government for policy failure.

It’s a perfect governance doom loop for a permanent Banana Republic of churning governments unable to address any policy questions of complexity.

That is a national security threat.

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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.