Centre Alliance must block supply on broken gas contract

As best as they can. Center Alliance has been betrayed by the Prime Minister on the most important reform in the Australian economy today: gas reservation.

Let’s recall where it began. Previously at The Australian:

Centre Alliance senator Rex Patrick wanted the government’s intention on gas in writing before he offered his party’s support for the full tax cut plan.

Senator Patrick told The Australian the document detailed the measures of the government’s gas plan and the timetable in which they would be rolled out “over the next few months”.

Centre Alliance says it has achieved changes to the Australian Domestic Gas Mechanism, new transparency measures for the gas market and long-term plans to ensure surplus domestic gas supply.

Senator Patrick says the gas reforms he has negotiated with the government will “cause lower electricity prices” but won’t say if he has a signed commitment for the policies.

“We’re gonna have a bunch of people, hardworking Australians, that get a tax cut,” Senator Patrick told ABC radio this morning.

“What we’ve done with the Government is negotiated a range of policy measures that they will announce over the next couple of months. And we have a very clear understanding of what those policies are. And we anticipate that they will have a positive effect for consumers on pricing.

“It’ll be good for consumers … it might be bad for gas companies.”

The tax cut passed. The Government announced a review into the Australian Domestic Gas Reservation Mechansim (ADGSM). It concluded a few weeks ago and said:

The review recognises that price is an important indicator in establishing whether the domestic market is functioning effectively and considers that the ACCC’s forward LNG netback price series is the most applicable prices when estimating the likelihood and extent of a potential shortfall. As such, the review recommends amending the ADGSM’s guidelines to include referencing the ACCC’s LNG netback price series in estimating a potential shortfall.

This amendment clarifies the relevance of the ACCC’s LNG netback price series to considerations under the ADGSM and strengthens the ADGSM’s ability to deliver on its objective of securing domestic gas supply.

The ACCC net back price today is $2.70Gj. 95% of volumes on the east coast are still being sold at $11Gj.

So, with the tax cut in the bag, the review out of the way, and a clear case of shocking price gouging, the Government was set to deliver on its committment to Center Alliance and trigger the ADGSM, crashing east coast gas prices by 75% and, by extention, electricity prices which are set by gas-fired generation.

Along the way this will deliver a huge utility price cut stimulus boost to every household and business on the east coast, much larger than the tax cuts themselves.

Hooray!

But, then, along came the bushfires and an exposed ScoMo needed a climate policy so what did he do? He can’t use a carbon price or an emissions cut. He’ll lose party room support. So he turned to gas. Rather than deliver on his promise to Centre Alliance, he made gas a giant poitical wedge. Instead of pulling the trigger on the ADGSM, he campaigned for more gas supply. And so, today, we get this from the new Resources Mininster, Keith Pitt, at Domain:

“I think we should use every opportunity to utilise the common wealth for the common good,” Mr Pitt said in an interview with The Sydney Morning Herald and The Age in his first days in the position.

Mr Pitt backed the vast Santos project to extract gas from the land around Narrabri in northern NSW, saying it could supply more than half the state’s gas demand and in doing so could support manufacturing jobs and lower gas prices.

“Of course with any new gas development we must ensure that our precious water resources are protected, that high value farm land is protected and that local communities and local business get real benefits and real jobs,” he said.

Mr Pitt also slammed the Victorian government’s moratorium on onshore gas exploration as a threat to jobs.

“If we don’t explore and develop new gas supplies, we are consigning a lot of our manufacturing sector to outsourcing overseas and making families and businesses pay more for energy supplies,” he said.

There’s some crocodile tears if I’ve ever seen them. The entire period of the Coalition Government has gutted manufacturing and it does not give a toss. This is not about delivering cheap gas. It’s about giving gas cartelier, Santos, a win at everybody else’s expense. Narrabri gas is NOT cheap at $7-8Gj and delivered more like $9-10Gj. So if it lowers prices at all it will be by a little. Meanwhile, all we have to do to cut the gas price by 75% is trigger the ADGSM reform agreed with Centre Alliance. And because the global glut is vast and unending for a decade at least, the net back price that governs the ADGSM will remain low, very likely much lower than Narrabri can deliver for many years.

If and when the net back rises high enough with global gas prices then develop Narrabri as needed.

The fact is, Santos and other gas carteliers have plenty of cheap gas on tap right now. But Santos is currently diverting the cheap gas from domestic supply to exports in QLD. This is despite Santos promising it would never do such a thing way back when it built its export plant. Previously from The Australian:

As Santos worked toward approving its company-transforming Gladstone LNG project at the start of this decade, managing ­director David Knox made the sensible statement that he would approve one LNG train, capable of exporting the equivalent of half the east coast’s gas demand, rather than two because the venture did not yet have enough gas for the second.

“You’ve got to be absolutely confident when you sanction trains that you’ve got the full gas supply to meet your contractual obligations that you’ve signed out with the buyers,” Mr Knox told ­investors in August 2010 when asked why the plan was to sanction just one train first up.

“In order to do it (approve the second train) we need to have ­absolute confidence ourselves that we’ve got all the molecules in order to fill that second train.”

But in the months ahead, things changed. In January, 2011, the Peter Coates-chaired Santos board approved a $US16 billion plan to go ahead with two LNG trains from the beginning….as a result of the decision and a series of other factors, GLNG last quarter had to buy more than half the gas it exported from other parties.

…In hindsight, assumptions that gave Santos confidence it could find the gas to support two LNG trains, and which were gradually revealed to investors as the project progressed, look more like leaps of faith.

…When GLNG was approved as a two-train project, Mr Knox assuredly answered questions about gas reserves.

“We have plenty of gas,” he told investors. “We have the ­reserves we require, which is why we’ve not been participating in acquisitions in Queensland of late — we have the reserves, we’re very confident of that.”

They don’t have the reserves in QLD and are sucking up cheap gas from NSW, VIC and SA. Pitt’s plan will only replace those cheap reserves with more expensive ones for local use from Narrabri.

In other words, everybody on the east coast – EVERY MAN, WOMAN and CHILD – will be forced to subsidise Santos’ gas exports to develop Narrabri becasue the PM lied to Centre Alliance and needed a climate wedge.

It’s time Centre Alliance kicked ScoMo directly in the nuts becasue that is what he is doing to it.

David Llewellyn-Smith

Comments

        • Yeh, there’s markets.

          The invisible hand controlling them is a bit broken, perhaps, but the markets are there.

          Gas is sold, gas is bought, there’s a market.

          It’s actually quite like the housing market. Houses bought, houses sold.

          Not enough houses or gas to go around, so they get rationed, through the market price mechanism, to those who need/value them most.

          The shortage and the high prices are what creates the awesome opportunities for profit. I wouldn’t expect the government to do much more to solve the gas shortage than it has done to solve the housing shortage. Profits and all that.

          • Yep. Failed markets are where lazy and stupid Australian capital likes to collect its profits/rents. much easier than this competition stuff, see.

            Lazy and stupid Australian governments support this. For a number of reasons – because they don’t understand it, because they dgaf, because they are corrupt, because they are lazy and stupid.

        • Sure there are. Markets that have reached their natural end point of oligopoly.
          See groceries, power, gas, fuel, increasingly car makers, toll roads and many others I can’t be bothered thinking of.

    • Not going to calculate in detail but Australia is heavily subsidising gas exports through a markup on cheap domestic gas. Re-imported gas might be about $6 more expensive than virgin gas. With an import terminal the domestic gas price would need to increase to about $16.

  1. Sadly the main stream media doesn’t address this issue in depth. I am guessing it is too complex for our journalists.