Either Labor kills the gas cartel or vice versa

The AFR continues its energy jihad against all Australians today:

East coast gas buyers have resigned themselves to the prospect of paying around $10 a gigajoule for gas, even with Labor’s gas plan signalling lower prices, said Cooper Energy chief executive David Maxwell.

“There no doubt that the mood has changed a lot in the last six to 12 months,” Mr Maxwell said after the junior explorer and producer reported a 51 per cent jump in quarterly sales from a year earlier, mostly due to the stronger east coast gas market.

“Whereas people were hoping that things were going to be different tomorrow and that continually never happened, I think now people are starting to realise that prices are going to sit in the ranges that are being quoted.”

The truth is that Labor can do much better than $10Gj if it has the will. It most certainly has the motivation because if it doesn’t do it then the gas cartel can destroy it in one term of government. As LNG imports arrive and drive the local price of gas to $17Gj on today’s prices (versus $10Gj under domestic reservation). That will send a new and huge power price shock through the east coast economy (recalling that gas sets the marginal cost of electricity) just as Labor talks up 50% renewables for the future. A sick Coalition will blame renewables and the climate wars go nuclear.

Conversely, if Labor takes on the gas cartel it could force the price lower to $6Gj and power prices will collapse providing immense stimulus to an income starved east coast economy.

This is a failed market requiring heavy-handed Piguvian intervention. All it needs is tougher domestic reservation. This is a Coalition policy so is a political free kick. The gas cartel has the cheap gas and can afford it. The following prices from BREE are all-in costs and with much of infrastructure built the cash cost is MUCH lower:

If the gas cartel refuses then deploy “use or lose it” laws to force them to negotiate. If so, Labor can deliver a sustainable $6-8Gj price and the LNG cartel will have to take the write downs for its white elephant LNG project instead of everyone else.

It will be rough, and Labor should war game it ahead of time, but if it does not do it then it runs the serious risk of being driven from power by resources firms a second time.

David Llewellyn-Smith
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  1. robert2013MEMBER

    Have you seen the price rises in the last 10 years for Australian meat in our supermarkets? Clearly we need a domestic beef and lamb reservation as well as a gas one.

    • But the price hasn’t really gone up because the ABS says hedonically that people will just substitute scotch fillet for cat food, so the price rise is all in your head!

  2. Keep at it David. Of all the moronic rent seeking policies over the last 20 years, this one takes the cake. I’m still gobsmacked that ANYONE can say with a straight face that the worlds number one exporter of gas should build import terminals because “free markets”. It’s our own neoliberal version of the potato famine.