ACCC: Gas cartel lied through its teeth to governments

Via the ABC:

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.

“The ACCC itself put this surplus at 138 petajoules or over a quarter of existing domestic demand on the east coast,” Andrew McConville, the chief executive of the Australian Petroleum Production and Exploration Association (APPEA), said in a statement.

APPEA added that moratoriums on new gas fields in New South Wales and Victoria were “key culprits” in any supply shortage.

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.”

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.

“[An International Gas Union survey found that] in fact Australia is a midfield player in world gas prices league,” APPEA boss Mr McConville said.

“Our average domestic prices are amongst the lowest in Asia — lower than gas-importing economies such as Japan, Korea and China, and lower than in our gas-exporting competitors like Indonesia and Malaysia.”

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.”

No it isn’t. Gas imports will come in at $10-11Gj. They will entrench the gouge forever.

Mark Samter is pussy-footing around horribly. It is not hard to fix. It is easy. Apply domestic reservation to cartel reserves. Renegotiate the export contracts. It happens all of the time and there is cheap as chips gas everywhere amid a HUGE global glut. The US just cut exports 50% because it can’t give its gas away.

The cartel lied. They are still lying. If there is so much gas domestically then why is it 400% more expensive than it was? They have no moral nor legal standing. Yet every household and business on the east coast are bailing them out with higher utility prices like ignorant peasants in Uganda.

This is total market failure demanding a draconian, cartel-breaking, anti-trust response.

Make the cartel pay for its bullshit. Apply domestic reservation to its reserves. Now is the time to do it.

David Llewellyn-Smith

Comments

  1. PaperRooDogMEMBER

    Cartel lied but Nev & the LNP will still reward them with massive price gouging for eternity! FU Aussie taxpayers!

  2. frag outMEMBER

    It is telling that the watch dog is upset that the gas industry ran rings around them then, and now, and will continue to sure as day follows night.

    Poor ACCC.

  3. MB readerMEMBER

    Whenever I go into bookstores, I see these little books titled “On – – – -“ covering an increasing array of subjects. DLS, you need to write one “On Gas”. They are short and you could knock it out over a few days. Be warned though, you will have to write in a more civil nature than you usually do!

    • Google for “On Bullsh1t”. A lucid and serious examination of the subject by a very smart bloke.

    • ZevombatMEMBER

      Books won’t change anything though, the same as articles like this haven’t changed anything. The battle will be won or lost by facebook memes – not endorsing facebook by any stretch but that’s just how it is for now. Get meme-ing

  4. Is this an LNP speciality? Foam at the mouth about refugees / controlling our borders whilst waving through record immigration. And then (Crocodile Dundee voice): that’s not a carbon tax… (brandishes gas contracts) that’s a carbon tax!

  5. bolstroodMEMBER

    As a Chichilla farmer told me about his dealings with the Coal Seam Gas industry;
    “They look you in the eye , and they lie, and they lie and they lie.”
    The unconventional Gas mining industry is a parasite industry that uses other peoples land, air ,and water, pays no rates, can enter farmers properties against the wishes of the land holder. It’s infrastructure renders the farms un viable, and it pays landholders a pittance.CSG destroys the health of those living near it’s operations.
    All this is enshrined in legislation supported by LNP and Labor .

    • legislation supported by LNP and Labor
      Any person who votes LNP or Labor is to blame. I have started opening stating this whenever voters are complaining about a certain thing.

  6. $250 million? Seems to be out by a factor of 10.

    In any case – you get a virtual import terminal with reservation. No need to build a white elephant.

    • frag outMEMBER

      I’m sure the figure being spit-balled is purely for discussion purposes and he doesn’t really know what it costs and is not intending to persuade or influence through deliberate misrepresentation or anything.

  7. “Often self-interest dominates what companies tell governments,” Mr Sims said.

    Now that’s a sparkling flash of insight.

  8. Display NameMEMBER

    This gouging should be thought of as a fossil fuel subsidy, approved and supported by the government. It makes the current government support for renewables look like a rounding error on the subsidies.