Via the ABC comes Stephen Long with the scoop:
The head of Australia’s consumer watchdog has slammed the gas industry, accusing it of misleading governments into approving massive gas export projects that have led to soaring power prices, killing off companies and jobs.
“A lot of the things that Australian governments, politicians, were told when those projects went ahead, turned out not to be true,” Australian Competition and Consumer Commission (ACCC) chairman Rod Sims told ABC News in an exclusive interview.
“So I think the gas industry as a whole certainly has to carry a lot of blame for the mess. And it is a mess that we are in; the companies that are closing down and [then] the trouble this is causing for Australian manufacturing and Australian jobs.”
He said the Federal Government should be “a bit sceptical” about what companies said.
“Often self-interest dominates what companies tell governments,” Mr Sims said.
But the gas industry lobby group APPEA categorically rejected the ACCC chairman’s criticisms.
It told ABC News the Queensland coal seam gas fields developed as part of the export program had led to a net increase in domestic supply.
Australia is the world’s biggest gas exporter
Australia has become the biggest exporter of gas in the world.
The gas industry forecast a bonanza in export income and significant economic benefits when state and federal governments considered whether to approve three giant export terminals off the coast of Gladstone more than a decade ago.
But some experts now consider that the economic risks of opening up Australia’s gas supplies were grossly underestimated.
Gas prices have tripled since the exports began, despite a boom in gas extraction from the opening up of coal seam gas fields, with the pain being felt by consumers and businesses.
The price shock has forced the closure of some major manufacturing and chemical plants and undermined the profitability and viability of other gas users.
Electricity prices — for households and businesses — have also been driven up by higher gas prices, because gas-fired power stations typically supply the electricity market during times of peak demand.
Mark Samter, a veteran gas industry analyst, agreed with the ACCC that the approval of the three giant gas export terminals was poor policy.
“That was all of the [gas] producers’ fault. They probably overstated reserves and were just gung-ho to get these things happening.”
“The fight on price was lost 11 years ago when these projects were all allowed to [go ahead] simultaneously.”
“It was 40 years of east coast domestic demand that was sanctioned to be exported over 20 years through those export terminals.
“Was that right? Almost certainly not. But we are where we are.”
Bringing back affordable gas is ‘tricky’
Asked about whether a gas reservation policy should be put in place to retain affordable gas for the domestic market, Mr Sims said: “It’s a really tricky problem to solve”.
He said LNG projects do sell some gas domestically, but “they have got contracts in place internationally and you have to be really careful if you upset those”.
“There is just no easy answer to this,” Mr Sims said.
“The problem was those three projects went ahead and there wasn’t enough gas.
The gas industry also disputes the competition watchdog’s view that the gas industry is charging Australian users too much for gas and higher prices than it charges customers overseas.
The ACCC calculates monthly export-parity or “netback” prices that it says a gas supplier can expect to receive minus the costs of liquifying the gas and shipping it overseas.
That price is about 30 to 40 per cent below current Australian prices.
But Mr Samter, who is regarded as fiercely independent, backed Australian gas companies in disputing this.
“It’s not comparing apples with apples,” Mr Samter said.
Nearly all the gas from the Australian east coast was supplied on long-term contracts, he said, with benchmark gas contract prices in Japan a little more expensive than contract prices in Australia of $9 to $10.
But daily or spot prices have collapsed to historic lows, equivalent to about $4.
Australia still looking to import gas
Despite being the biggest exporter of gas in the world, Australia is looking to import large quantities of gas to cope with a looming domestic shortfall.
A consortium involving billionaire mining magnate Andrew Forrest and Japanese investors has approval to build a gas import terminal at Port Kembla which could supply 75 per cent of NSW demand.
The consortium, known as Australian Industrial Energy or AIE, is billing it as an opportunity for gas users and big energy companies to take advantage of cheap international prices by importing gas from world markets, or to lock in contracts for security of supply.
Though a country awash with gas being forced to import might seem bizarre, Mr Samter said it was “absolutely necessary”.
“And if I’m wrong — something that costs $250 million and is being built with private money, where is the risk in having this as an insurance policy?
“The only risk is that some rich people lose $250 million.”
Gas reservation is obviously the best solution. It is the only way to restore the local gas price to its local cost of production.
That said, if the LNG terminals are fiercely regulated and offer imported gas at Asian spot prices, which are much lower than oil-linked contracts, then they are the second best option given they will cap the cartel prices at the lowest possible Asian price.
We will have lost our gas competitive advantage but at least we’ll no longer be at a disadvantage.
But all of this academic. The Government agreed with Centre Alliance to make the Australian Domestic Gas Security Mechansim (ADGSM) price sensitive at the JKM net back price. It did so in return for $158bn in tax cuts.
A deal is a deal is it not?
