Memo to ScoMo: The gas cartel is lying to you

Via the AFR comes The Cartel:

Centre Alliance Senator Rex Patrick is pushing for modifications to the Australian Domestic Gas Security Mechanism to bring down gas – and therefore electricity – prices. He has pointed to chief competition regulator Rod Sims’ suggestion of $7 a gigajoule as a potential reference point, although argues the price on the east coast should be even lower.

But gas industry industry sources on Tuesday said they saw little appetite from the Morrison government – and the office of federal Resources Minister Matthew Canavan – to go down that track and said the government’s resolve against such a move had firmed over the last few days.

“There is no conceivable way they could do it on price,” one source said. Executives said they also regarded it as unlikely that the federal government would trigger the ADGSM and invoke controls on LNG exports because that would only raise sovereign risk while doing nothing to reduce east coast prices.

Industry sources point to a minimum price of $6.50-$7 a gigajoule to bring on new gas fields in Queensland, translating to more than $8.50 a gigajoule for a customer in Victoria once transportation costs are included.

Blah, blah, blah. The cartel has plenty of cheap gas to leave in Australia. Note that it says “new gas fields” will not be viable at $7Gj to supply locally. What about the old gas fields? The same ones that come out of the ground at $1-3Gj? That’s the gas that should be left here. It is the third party gas vacuumed up by the cartel when its own reserves fell short. And it is also the QLD gas, from BREE:

These are all-in costs that include infrastructure. $7Gj offers reasonable margins for the cheap stuff. But given much of the infrastructure is already built, the cash costs are less than half anyway.

If there needs to be cut backs to production owing to uneconomic supply then make them to exports. It’s not obvious that even that will happen given most volumes are going to Asia at $10Gj via oil-linked prices.

Sure, the cartel will have to lower its profits outlook and take some write downs but who cares. That’s business.

As for the sovereign risk argument, it’s bollocks. The QLD LNG industry will never see another dollar of investment anyway. Every other energy exporter on earth does reservation, including Mozambique, which ranks 158 on the TI corruption scale, and is currently enjoying massive LNG investment. LNG export contracts are renegotiated all of the time. Some recent examples from a five minute google search:

  • Edison renegotiated RasGas contract on price and volume in 2012;
  • PGNiG renegotiated QatarGas contract on volume in 2014;
  • Petronet renegotiated RasGas contract on volume and price in 2015;
  • PetroChina renegotiated QatarGas contract on volumes in 2015;
  • JERA renegotiated RasGas contract on volume and price in 2016;
  • Pakistan renegotiated QatarGas contract on volume sand price in 2016;
  • Japan declares multiple contracts illegal owing to “destination clauses” in 2016, following Europe from a few years earlier;
  • Petronet renegotiated Exxon-Mobil Gorgon contract on volume and price in 2017;
  • Woodside Pluto contracts renegotiated on price in 2017;
  • Kogas renegotiated Woodside contract on price in 2018;
  • GAIL renegotiated Gazprom contract on volume and price in 2018;
  • India in talks with Cheniere and Dominion to renegotiate contracts in 2018.

The only risk in Australia’s failed gas markets is to the sovereign. The energy cartel is siphoning off $15-20bn of income from the east coast economy annually directly from households and business. It is destroying Aussie competitiveness while it is at it. Even ScoMo cheerleader Terry Mccrann can see it today:

The federal and state governments have to kick up spending on much-needed infrastructure.

They also need to help business become more productive. And crucially, they need to deliver lower prices for energy – for electricity and gas – to both consumers and business.

Our governments also need to guarantee the supply of that energy: there’s no point in having cheaper prices for something you can’t get.

It is massively in the Government’s interest to smash the gas cartel, liberate all of that income for consumption, look like a hero on utility prices, plus drive down inflation and interest rates even further.

Houses and Holes
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    • spot on …30 pieces of silver….god helps those that help themselves…pray for the righteousness of absolute corruption to exalt the most worthy bank accounts including dear friend Roberts

    • ++

      And think of all that property price growth we’re missing out on because of those damn gas prices and eye wateringly high interest rates….

    • The chronic “Christian ” liar would not know a lie if it hit him fair between the …… eyes. He is doing (his) “God’s” work 🙁

  1. “The energy cartel is siphoning off $15-20bn of income from the east coast economy annually directly from households and business.”
    Yes, and this has to be playing a part in the very noticeable increase in the last few months of empty shops in the St George area. Aussies are being used by big business to cover for decades of poor policy, but when the wealth effect tide went out it become visible, as tar commodity tide follows in the next year it should become apparent to all. Even those nice Christians which are so gullible should see the light then. #howpartiesdie

  2. HadronCollision

    someone send to Rex and Stirling
    None of this “toughening” of ADGSM tomfoolery
    Hard reservation at some low fixed price.
    Nationalise the pipelines (waves at APA) whilst at it

    • ErmingtonPlumbingMEMBER

      I second that motion!

      “Best Rex ever” would no doubt also be supportive,

      Rex Connor,

      Minister for Minerals and Energy. In this portfolio he sought to develop an Australian-controlled mining and energy sector, one not controlled by the mining companies he disliked. Among his plans were a national energy grid and a gas pipe-line across Australia from the North-West Shelf gasfields to the cities of the south-east. He liked to recite a piece of poetry by Sam Walter Foss (who was, ironically, American):

      Give me men to match my mountains,
      Give me men to match my plains,
      Men with freedom in their visions
      And creation in their veins.

      Connor’s economic nationalism was popular with the Labor rank-and-file, and the 1973 oil crisis seemed to many to be a vindication of his views. After the 1974 election he topped the Caucus ballot for the second Whitlam ministry. But the flood of petrodollars which accompanied the energy crisis proved to be Connor’s undoing.

      Had it not been for the Kemlani affair our Business and domestic consumers would today have the cheapest gas and electricity in the world.
      A much needed competitive advantage for our high wage country.

      Alas it was not meant to be.
      As Peter Garrett says in his song the power and the passion,

      “Gough was tough till he hit the rough,
      Uncle Sam and John were quite enough”
      “Too much of sunshine too much of sky
      It’s enough to make you want to cry”

  3. The memo needs to be to Rex.

    Gas reservation has to be on old wells – not new fields.

    The ALP’s silence on gas reservation is deafening.