Centre Alliance: Toughen gas reservation

Via The Australian:

High gas prices on Australia’s east coast have underlined the need for potential changes to the government’s gas export curb trigger to ensure sufficient supplies at lower tariffs are available for domestic users, Senate powerbroker Rex Patrick says.

Australian consumers were paying 71 per cent more on average for spot gas at the current market price than export “netbacks”, which measure the delivered price of LNG minus the costs of liquefaction and transport, a study reported in The Australian on Monday from the green-focused Institute for Energy Economics and Financial Analysis found.

“This is exactly the sort of information that was of concern to me when I first raised the issue with government,” Mr Patrick told The Australian.

“We appear on the face of it to be paying a lot more for our gas here in Australia than customers are paying for our gas in places like Japan. That needs to be looked at.”

Yes it does. As I noted yesterday, there are many ways to skin this cat but unless you’re muzzled or blinded there is only one conclusion.

APPEA also questioned comparisons of spot prices with those paid by Australian consumers.

“It is not reasonable to compare ‘spot prices’ in the day-to-day gas market with those typically paid by Australian gas users,” Mr McConville said. “Less than 10 per cent of Australia’s gas demand is met on the spot market. Average prices remain below export netback prices and dramatically lower than those paid in countries which import Australian gas.”

Who is correct? It is true that most Aussie volumes are contract based. But it is also true that Asian volumes are increasingly spot based, about a third today and climbing fast. Spot is today around AUD8 in Japan. It has been averaging about AUD9 here.

Whereas Asian contracts are based upon a percentage of the Brent oil price. But that “slope” has been collapsing as well, from 15% during the boom years to many deals down at 9% today. If use 12% then we get a contract price today of AUD10.55

So, if we base out calculations of weighted adjustments of different pricing mechanisms we get an aggregate price in Japan of AUD9.05 versus Australia at AUD9.80:

Japan Australia
Contract  volumes 67% 90%
Contract price AUD 10.55 10
Spot volumes 33% 10%
Spot price AUD 6 9
Weighted average price 9.05 9.8

Clearly more expensive here than Japan. But that’s not the end of it.

The gas cartel agreed to supply gas locally at “net back” prices for Australia so we need to subtract the price of pipelines, liquifaction and shipping, roughly AUD1.50.

Moreover, the above is all academic anyway. The cartel also agreed to supply the local market using JKM, the Japanese spot price minus export costs, when it signed up to the ADGSM with Malcolm Turnbull. On that basis we should be seeing a local gas price of AUD7.50 anyway, not the AUD9.80 that we are paying.

Any way that you cut it, Aussie gas it much more expensive in Australian than it is Japan and, although that is a useful marketing gimmick to fight the cartel, the reality of the gouge is even worse.

The Centre Alliance inspired review of the ADGSM is ongoing so this can all be seen as part of the politicking to add a price trigger to the mechanism.

David Llewellyn-Smith

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.

Comments

    • It would be nice, but unlikely. Most of our Reps are just career climbers, servile and unlikely to rock the boat lest they jeopardise reaching that pot of gold at the end of the rainbow