The AFR wakes up the sleeping monster of Australian economic destruction today:
Stronger oil prices and the softer Australian dollar have combined to propel theoretical returns from Queensland LNG exports to record levels, with commodity prices in local currency now above the average when the projects were given the go-ahead for construction.
New analysis from energy adviser EnergyEdge has found that netback prices for contracted LNG export sales have reached $12 a gigajoule at the main Queensland gas hub, higher than any time since the three projects started production in late 2014 to late 2015.
…The rise in netback prices – the export price for LNG less processing and transportation costs – means they are sitting comfortably above wholesale prices for gas on the east coast, making it more difficult for east coast gas buyers to argue for lower prices, or for federal resources minister Matt Canavan to threaten LNG export controls.
So why aren’t local gas prices skyrocketing? Plus power prices following along as they always do given gas sets the marginal cost of electricity?
Because of domestic reservation. More particularly, the Australian Domestic Gas Security Mechanism (ADGSM). But in its current form it won’t work for long. Current east coast gas prices are at $9Gj. ADGSM is supposed to roughly target export net-back which is now at $12Gj. The only reason local prices are not already there is the government and opposition is waving the ADGSM around like baseball bat to pressure the gas cartel.
Now imagine what it would be like if Australia instead today relied upon LNG imports to set the marginal cost of gas in the east coast market. LNG imports are by definition higher than export-net back by about $5Gj. In other words, the gas price would already be at $17Gj and the power shock driving Australia towards recession.
This is it in black and white. For all the bluster and bullshit of the ACCC, the gas cartel, the incipient gas import cartel, the NSW government and anyone else defending LNG imports, they are an absolute disaster in the making. If the Asian gas price rises to $15Gj and the AUD falls to 50 cents then the local gas price will hit $33Gj.
The answer is obvious. Fix the ADGSM at $6Gj permanently. The gas cartel can export its arse-off at good margins now that the cost of the LNG plants has been written down, the AUD has tumbled and the Asian gas price is past its worst.
But it must leave its cheapest gas in the domestic market for the right to do so.
