Professional cartelier, Santos, is back again today:
Santos chief executive Kevin Gallagher has declared there are plenty of producers of gas competing to supply the east coast market, dismissing a “cartel” allegation by Centre Alliance’s Rex Patrick, who is negotiating for tougher controls on LNG exports in return for support for the Coalition’s tax cuts.
…Among moves under discussion are a tweaking of the trigger for the ADGSM to require a mandatory surplus in east coast gas supply of potentially 5 per cent beyond demand, Senator Patrick said, adding the details would be left to the experts. A national interest test for new projects is also an option, as is domestic gas reservation, as already applies in Western Australia.
So, what is a cartel? This:
A cartel is a group of apparently independent producers whose goal is to increase their collective profits by means of price fixing, limiting supply, or other restrictive practices. Cartels typically control selling prices, but some are organized to force down the prices of purchased inputs. Antitrust laws attempt to deter or forbid cartels.
The LNG export cartel, which leases roughly 90% of east coast gas reserves, and vacuums up much of the rest, fits the definition perfectly. Prices soared from $3gj to $20Gj from the moment that exports started and it limited supply into the domestic market. Santos’ lies should not even get printed.
That is what domestic reservation is, a form of anti-trust law. That’s why Santos lied about having enough reserves as it helped form the cartel, because it is illegal, previously from The Australian:
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.
That’s why every other energy exporter on earth, from banana republics like Trinidad and Tobago to the home of free market capitalism in the US, have some form of domestic reservation. To prevent export cartels from ravaging failed domestic markets. Even corrupt WA has it and the results speak for themselves:
But no, says Minister for Climbing the Greasy Pole, Justin Falinski, whose Mackeller constituents are being mercilessly plundered by the cartel in both gas and power bills:
There is an old saying that smart people learn from their mistakes, but the really clever ones learn from other people’s mistakes. Domestic gas reserves were first implemented during the energy crisis of the 1970s, and they made the problem worse. The ultimate in virtue signalling – sounds good, does bad.
According to University of Western Australia economist Kelly Neill, WA domestic gas reservation policy costs about $410 million a year. It decreases the incentives for exploration for new reserves, thereby reducing supply in the long term. Not to mention the unintended disincentives it creates, like when the WA government opposed the construction of the transcontinental pipeline because it would undermine its reservation scheme. As Margaret Hall, head of energy for the Seven Group pointed out: “The core issue is getting more gas into the market.”
Look at the chart, Minister. Is WA reservation failing? Or is not having it on the east coast costing your constituents dearly? Virtue signalling cuts both ways. If flattering gas carteliers means getting ahead then you signal virtue to them.
Gas reservation will force the gas and electricity price lower permanently if the Government has the will. Whether it does is the only economic question.