SmoCo has deranged the Centre Alliance gas deal

It’s hard to believe he could make it worse but SmoCo is trashing the east coast gas market, at the AFR:

The federal government and NSW have reached a $2 billion energy deal which will require NSW to free up massive amounts of gas for domestic use in return for the construction of new interconnectors, the underwriting of new non-coal power generation, and funding for emissions reduction projects.

Two days after Scott Morrison said bilateral deals with the states were the best way to reduce emissions in the energy sector and guarantee supply, he and NSW Premier Gladys Berejiklian will unveil details of their agreement on Friday.

Pivotal to the deal will be the NSW government having to find an extra 70 petajoules of gas per year for the east coast domestic market.

This could be done by either the government importing more gas through Port Kembla but it is far more likely to give the green light to extract gas from the Narrabri gas fields.

I’m all for developing Narrabri though the community sure isn’t. But this won’t solve anything. Selective gas reservation deals with the same cartel that makes the need for reservation vital in the first place doesn’t work.

Even if Santos, the gas cartelier that holds the Narrabri reserve, develops it it won’t lower gas prices. It will come out of the ground at $8Gj, which is very expensive, and only succeed in displacing cheap gas, like that in the Cooper Basin also held by Santos, for higher export volumes from the Curtis Island plants that are running well below capacity.

In short, selective reservation enables STO to juggle its portfolio of gas assets to keep prices exactly where they are, at $11Gj. The same now applies to the cheap gas Beetaoloo reserve in NT which Resources Minister Matt Canavan has reserved for use exclusively in the enormous metroplis of Darwin!

The Australian Domestic Gas Reservation Mechanism (ADGSM) has just been reviewed thanks to a deal with Centre Alliance for tax cuts. The outcome was to recommend putting in a price trigger to bring east coast prices down from $11Gj to “export net back” based upon the Japan Korea marker, or about $4.50Gj today.

The Morrison Government just needs to pull the lever on the ADGSM and the gas price will crash. Sure, Narrabri won’t be developed until the global market demands that it is needed via higher net back prices. But who cares?  According to global futures markets, that will not be before 2025 (and probably not afterwards, either).

This is the paradox now created by SmoCo’s bastardisation of the ADSGM. The world is awash with cheap gas. Australia is awash with cheap gas. But by doing sweetheart ADGSM deals with the cartel, instead of it being a blanket mechanism that forces the cartel to leave its abundent cheap gas in Australia, it is transformed into a pork mechansim that empowers the cartel to export all the cheap gas while developing overpriced gas for the locals.

In short we crash our export prices while rocketing our domestic costs. It takes a peculiar kind of genius to so derange the public interest.

SmoCo is right about one thing. He’ll accelerate decarbonisation as the gas cartel’s effective private carbon tax drives massive solar and battery take up in the private sector.

At the highest possible cost to all but the gas cartel.

David Llewellyn-Smith
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Comments

  1. Still no mention of the original gas deals which ripped off every Australian tax payer. No mention of the royalty split, taxes paid by these multinational corporations.
    I will summarize; Howard bent down on knee to USA offering our future gas contracts/ allowing foreign cheap labor to work on these offshore gas rigs/ allowing the gas to be sold only to other countries for decades/ giving grants for the corporations for exploration of gas or oil/ being allowed to pay tax in other countries instead of here, in return for tiny royalties.

    This all from memory so may be a little incorrect. not my fault as no one will report on actual data and facts just “stop the boats” Murdoch nonsense.