NSW to import bricks as gas gangsters steal economy

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They’re made of dirt and water and take up a lot of space. In short, they are extremely contestable, a nightmare to transport and nobody ever trades them. Yet NSW is about to do just that with imports because it can no longer afford to make them.

Yes, it is the neanderthal practice of manufacturing bricks, via the AFR:

Industrial energy users are demanding an urgent focus from the returned Coalition government on bringing down electricity and gas costs and the end to the vacuum on energy and climate policy that is being blamed for chasing manufacturers from the country.

Industry bosses say the transition to clean energy is already underway and the government needs to focus on making it more – not less – efficient.

“When manufacturers start closing and companies like me start saying I can bring bricks from Pennsylvania 16,000 kilometres away and land them in Sydney cheaper than I can make them, they’ve got big problems,” said Brickworks chief executive Lindsay Partridge.

As said yesterday, Asian gas prices have collapsed to $6.70Gj. According to the agreement struck by Malcolm Turnbull with the east coast gas export cartel – to benchmark local prices to export net back from mid-2017, called the Australian Domestic Gas Security Mechanism (ADSGM) – the local price should now be trading below $5Gj.

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Yet today it is still riding high at $9.25Gj. It has been roughly this far out of step with the agreement all year.

In short, the gas cartel is openly breaking the law. The keystone cops assigned to police it, the ACCC and AEMO, are saying nothing. The Government appears to have forgotten the law even exists. Resources Minister Matt Canavan manages the ADGSM yet he’s done nothing.

If the agreed gas price was delivered and sustained, it would deliver a $15-20bn utility price cut for business and consumers via both tumbling gas and power prices (given gas sets the marginal cost of power).

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There is more at The Australian:

Businesses have threatened to pull $2 billion of planned investmen­t from NSW as frustrations mount that delays approving Santos’s Narrabri project will cripple the viability of their operations.

Gas giant Santos issued a plea yesterday for the NSW government to outline its approval timeline for its $3bn coal-seam gas project in the Gunnedah Basin just days after the Queensland government agreed on a deadline to make a call on Adani’s long-delaye­d ­Carmichael coalmine.

Santos’s demand has been reinforced­ by industrial gas custom­ers, who have agreed to preliminary deals to buy gas from Narrabri, which could meet half the gas needs of the state.

Narrabri should be approved. But let’s not mince words here. Santos is the problem not solution. Narrabri gas won’t lower the price below $9Gj, either, and much of its volumes will also go offshore because Santos is a key member of the gas export cartel and is very short of gas for its LNG plant. Recall how that happened:

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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.

And now we need to import bricks as the gas gangsters force the entire east coast economy to its knees to bail out their grotesque capital misalloaction into gas export overcapacity.

This is now way beyond energy market failure. It is rampant corruption and collusion to steal a nation’s wealth.

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And you what the funny part about it is? I’m not even exaggerating!

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.