The amusing life cycle of a Victorian gas molecule

The Australian energy crisis is the circus that just keeps on giving, via The Age:

“It’s an inevitability that Australia will import gas, there needs to be at least one gas import terminal in Australia, if not potentially two,” Macquarie Bank analyst Andrew Hodge told Fairfax Media.

…However, he said the terminals were unlikely to help drive down gas prices, which are forecast to average $12.60 per gigajoule next year.

Mr Hodge said any import terminal would set a new price floor, instead of actually driving prices down, however, he said they might act as “magnet pricing, where the price gravitates around them”.

Exactly. LNG imports will set the new marginal cost of gas on the east coast which will be the Asian price for the gas plus the cost of the import plant and a margin. Today that will deliver a spot gas price of…wait for it…$18.60Gj. The spot gas price today under the ADGSM domestic reservation policy is $9-10Gj so we are talking doubling the price which will also cause, of course, a massive surge in electricity prices because gas generation sets the marginal cost of power. Obviously to make this staggering gouge viable, the ADGSM will have to be destroyed.

But that’s only where the fun starts. It will be both unnecessarily costly and bothersome for the import/export cartel to actually bring in foreign gas. It will make much more sense to import Australian gas.

Victoria especially will then enjoy its own gas after it has done a rather amusing round trip. It will be extracted from Bass Strait, piped north to QLD export terminals, frozen for transport, sailed out to the reef for a bit, then motor south to the Victorian LNG import terminal. There it will be unfrozen and distributed into the same pipeline network that carried it north and sold to Victorians. Along the way it will have added costs of:

  • massive overcharging for the original gas via the BHP/Exxon Gippsland cartel;
  • $2Gj to pipe it north;
  • $2Gj to freeze it and ship it south;
  • $3Gj to unfreeze it and release into the “market”.

That’ll give you your $18Gj gas which came out of Bass Straight down the road at $1Gj or similar. At this point the molecule of gas might be used to make, cook or heat something. Or, it might be bought again by the gas cartel and make the same round trip a second time for some more ticket clipping.

Exactly why this amusing form of national suicide is “inevitable” is not obvious to me.

Stiffen domestic reservation now.

Comments

  1. They also say “Sydney will have 8 million people – it is inevitable”.

    The propaganda is relentless.

    • OF course it is inevitable – it has been predetermined. The decision has already been made. The world’s biggest gas exporter (which we will become soon) will have to import gas so its consumers can pay amongst the world’s highest prices for gas (I don’t know if this is true but it sounds good for the purposes of this rant and that is all that matters) because f**k you, you f**king nobody.

      • You assume it is countries first and corporations inside them which is false. Instead companies rule and are exporting either to Australians or foreigners. To these companies they are all foreigners anyway. Which country does the gas come from? Who cares; it is BHP/Santos/Exxon/etc’s gas.

        On a side note I personally think its better if the Government had its own mining company instead on relying on private investment. All these companies do is dig non-renewable stored money out of the ground; there’s hardly any innovation there. The only private part should be prospecting for resources (where the innovation and competition delivers value) which would still give you a lucrative fee depending on the resource but not the economic ownership afterwards.

  2. DodgydamoMEMBER

    Thank you for once again putting the insanity of Australia’s broken natural gas market into a clear concise format even my primary school children can understand. The stupidity of this country, it’s political class and it’s ignorant citizenry is mind numbing.

  3. Surely there is also room in there for some derivative action. Megabank would no doubt be selling some energy backed CDO internally leveraged to the power of 10.

  4. Qld has been a net exporter to NSW/Vic this year – that Vic molecule likely never got any further north than Sydney.

    • St JacquesMEMBER

      Vic net exports over 30 % of its production so the real (physical) net exports from QLD are to NSW, not Vic, even if in “contracted terms” they are (gas in the network is fungible).

  5. Also some of the gas molecules brethren will have to be be destroyed in the energy intensive freezing/unfreezing process thereby releasing CO2 into the atmosphere for no particularly good reason. It was notable that Australia’s emissions targets are increasingly unlikely to be met due to rising LNG production for export, while emissions from our own electricity generation are actually falling.

  6. Surely they’re just ending the role of gas eventually. I’ve replaced all gas in my house with electrical equivalents. They’re cleaner, cheaper to run, and work better. Calling AGL and politely telling them what to do with their gas connection was enjoyable.
    There’s a lot of gas requiring infrastructure out there but over a decade or so a lot of it can be retired and replaced. You’d be crazy to build a new house with gas appliances these days in my opinion. Put the money into solar panels instead.

    • “You’d be crazy to build a new house with gas appliances these days in my opinion. ”
      That’s a bit smug. I’m building right now — All Gas. Hot Water x 2 Instant units + Gas Stove Top. Instant heat !

  7. Calm down H&H, very high gas prices are a win for renewables, wind PPA’s at $55 / MWh now ($15.27 GJ) will make inroads into high gas prices and facilitate CO2 reductions. Low gas prices are a killer for renewables so this longer term is actually an environmental win. Some ill informed believe gas is a transition fuel which unless there is zero fugitives is not actually the case. With fugitives of less than 2% natural gas can be worse than coal for global warming (CH4 86x CO2 GWP on < 20 year time span)! Perhaps our pollies are playing a slick strategy to decarbonise OZ energy (yea nah – they are too thick and too self interested in a nice post politics consulting gig).

    • MaryleboneMEMBER

      MQG has a renewables team that can’t find enough projects to allocate their cash to. Talking their book here?

  8. It’s not stupid. Politicians are in bed with ticket-clippers. Simple when you think about it.

    The idea that politicians ever want to decrease prices of anything by any significant amount has always been a myth. I mean, really, what do they have to gain by doing such a thing?

  9. You assume it is countries first and corporations inside them which is false. Instead companies rule and are exporting either to Australians or foreigners. To these companies they are all foreigners anyway. Which country does the gas come from? Who cares; it is BHP/Santos/Exxon/etc’s gas.