These test tube economists are a plague, via The Australian:
Forcing Australian gas exporters to increase their domestic output could “distort resource allocation” and drive up energy costs over time, the Productivity Commission has warned.
…The Productivity Commission said reductions in production could deliver lower gas supply volumes, shifting higher costs on to the gas industry and energy users.
“In the short term, the commission observed that (domestic gas) reservation would divert gas from liquefied natural gas (LNG) production (that would otherwise be exported), to domestic users,” it wrote in its submission.
“With a sufficiently large domestic supply requirement, this would place downward pressure on wholesale gas prices for domestic users, while imposing a cost on producers that supply gas to the eastern market.
“This in turn would distort resource allocation, with economic losses compounding over time. Domestic gas reservation would encourage investments in gas-intensive (and related) industries on the basis of gas prices below levels that would have otherwise prevailed in the market.”
The Productivity Commission found domestic gas reservation may be “ineffective in preventing wholesale gas prices for domestic users in the eastern market from rising over time”.
“By reducing the return on new supply sources, reservation would decrease incentives to invest in gas exploration and development,” the commission said.
“The gap created between domestic prices in the eastern market and export prices likely under such a policy would weaken incentives to invest in projects that would produce solely for the eastern market, given that all of a domestic project’s production would be sold at prices below the market level.”
Yeh, they actually wrote that. As if, somehow, the existence of the world’s most toxic gas export cartel isn’t already distorting resource allocation, charging Australians $12Gj for gas when the world pays $4Gj.
As if the rest of the world, all of it, doesn’t enjoy cheap gas owing to domestic reservation.
As if WA domestic reservation hasn’t kept the price at $4Gj.
As if all new Australian supply isn’t prohibitively expensive.
As if, without reservation, it won’t also go offshore.
As if the ACCC didn’t make this exact same argument for years while the cartel formed, only to volte farce and back reservation as the only hope.
As if worrying about high gas prices in the far distant future owing to market distortions makes any sense when you’re paying astronomical prices today owing to complete market failure.