Scotty from Marketing incoherent on gas


You would think a policy process is rocket surgery the way that this government butchers it. Take gas, for instance.

Having completely ignored gas as an economic problem and climate change solution for the entire term of office, the Coalition is now throwing a hail Mary to save Scotty from Marketing from climate change fallout.

A gas solution for the east coast economy would give me no greater satsifaction. But the legacy of policy failure for this market is extreme and that burdens Scotty from Marketing with market structures that make a useful outcome very difficult indeed.

Let’s revisit his speech yesterday, via the AFR:


Central to lowering energy emissions, Mr Morrison said, was the need for more gas and this required NSW and Victoria to permit the extraction of their vast onshore gas reserves.

“We need to get the gas from under our feet. There is no credible energy transition plan for an economy like Australia, in particular, that does not involve the greater use of gas as an important transition fuel,” he said.

“Sweating our existing coal-fired power generation assets will only take us so far.

“Gas can help us bridge the gap while our investments in batteries, hydrogen and pumped hydro energy storage bring these technologies to economic parity with traditional energy sources.”

Let’s get a few things stright. Nobody really knows how much unconventional gas Victoria has. It’s all speculative. What we’re really talking about here is NSW and, in particular, Narrabri, which is a big gas reserve.

Narrabri nicely defines Scotty from Marketing’s incoherence. Narrabri gas comes out of the ground at $8Gj. That’s not cheap. Indeed, it is very expensive at almost triple historical rates for gas. Yes, it is cheaper than the $11Gj currently being paid in the contract gas market but there are reasons to fear it wouldn’t drop prices anyway.


Paramount among those fears is that the Narrabri reserve is held by Santos, the single most ruthless cartelier in the east coast gas monopoly. STO won’t develop Narrabri to drop prices. It will manage it in a portfolio of other assets to ensure that only the most expesnive gas is dropped in Australia and while it ships even more of the cheap stuff offshore.

But, Scotty from Marketing will counter, we’ll reserve Narrabri for domestic use! Sure, you can do that but it changes nothing unless the reservation covers all assets. STO can still pump expensive reserved gas locally while shipping the unreserved cheap stuff offshore.

Which brings us to Scotty from Marketing’s other contradiction. He did a deal with Centre Alliance to stick a price trigger in the existing resevervation regime, the Australian Domestic Gas Security Mechanism (ADGSM), in return for massive tax cuts. The ADGSM review has recommended that price trigger and it should now be deplioyed, or Centre Allaince will have to blockade the Government in the senate.


But, when use the ADGSM price trigger, net back to the Asain price (JKM), the local price of contract gas should plunge to $4.50Gj. Even projecting out to 2025 in futures markets, the net back price upon which the ADGSM is based does not see the local gas price consistently above the $8Gj needed to develop Narrabri.

The plot thickens even further when we consider the recent outburst by Resources Mininster Matt Canavan who announced the ADGSM review with great fanfare only to declare that the NT’s Beetaloo Basin gas, which could be piped to southern states at $5-6Gj, won’t be. Beetaloo is also run by STO and Canavan is working with the cartelier to direct the gas to Darwin for some piple dream of cheap manufactures to be shipped to Asia. As if Asia, cheap manufacturing central, is about to import cheap manufactures, FFS.

The simple fact of the matter is, STO doesn’t want that gas in the south. It’s too cheap and will also prevent the development of Narrabri.


In short, Scotty from Marketing has a number of different tactical policy processes around gas that make absolutely NO strategic sense when put together.

Which rather raises the question is he serious about any of it? Sadly, when we consider the political import of these discussions the answer isn’t encouraging. Putting pressure on NSW and VIC to fix climate change via their own gas is, if you’ll pardon the pun, a terrrific way to “gaslight” the populace. It’s a political wedge that enables Scotty from Marketing to pretend that climate change it is all their own faults. Even better, it plays beautifully into his power base in QLD, where everything in sight is fracked.

I could be, and hope, that I am wrong. If the ADGSM trigger is pulled then the east coast gas price will crater and all of these issues will go away. But if Scotty from Marketing intends to pull it then why is he on the hustings drumming for uneconomic, locally fracked gas?


At a certain point in time Scotty from Marketing might consider running his country instead of his political party. He might even disciver the two go together.

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.