Santos takes a whiz on ACCC (and you)

Let’s recall what the ACCC recently had to say about the gas cartel this week:

Australia’s east coast gas users are paying prices significantly above export parity prices, the ACCC’s latest gas report reveals.

The ACCC’s Gas Inquiry 2017-2025 Interim Report, released today, shows that prices offered to domestic gas users in late 2019 and early 2020 ranged from $8 to $11/GJ.

While this was down slightly from the $9 to $12/GJ range observed earlier in 2019, this price decline was not in line with the significant and sustained drop in LNG netback prices, which were for 2021 delivery below $6/GJ by early 2020 and have been below $5.50 since May.

“The ACCC is very concerned with the widening gap between domestic and export parity prices, which will have an inevitable impact on Australia’s industrial sector during what is already a difficult economic period,” ACCC Chair Rod Sims said.

“Queensland LNG producers sold 18 LNG spot cargoes into international markets in late 2019 and early 2020, equivalent to more than 10 per cent of annual domestic east coast demand. This gas was sold at prices substantially below domestic gas price offers, showing the importance of our continuing work to understand the drivers behind the price levels we are seeing across the domestic market.”

“It is also clear that recent Australian contract gas prices do not reflect overseas forward prices.”

“I am yet to hear a compelling reason from LNG producers as to why domestic users are paying substantially higher prices than buyers in international markets.”

“When we have lower gas prices around the world, and the Australian market linked to world gas markets, it is vital that Australian gas users get the benefit.”

Today, cartel leader and accomplished liar, Santos, responds:

Santos managing director Kevin Gallagher has responded to criticism from Australia’s competition watchdog which says gas exporters are failing to pass on global price reductions to local customers on long-term contracts.

Mr Gallagher on Thursday said he would be “very happy” to be transparent and provide information on pricing if requested, but urged authorities to also consider the cost of production.

“When spot prices are low it’s because there’s an oversupply in the market … so they are below the cost of supply,” he said. “To expect us to sell at a cost below the cost of supply is nonsensical.”

What readers need to understand is the difference between cash cost and all-in cost. Liar Santos is hiding behind all-in cost which does require high prices for profits. But that includes the cost of building its immense white elephant LNG export plant. Once that is removed, the cash cost for gas extraction is very low and it can be supplied quite profitably on a cash basis.

The problem for liars like Santos is that this results in writedowns for the capital misallocated into the dud LNG plants, as we have seen for years, so they hate doing it.

In short, they could very easily supply much cheaper gas locally and still be cash profitable but, for obvious reasons, they very much prefer to charge like wounded bulls to bail out their own catastrophic mistakes.

Needless to say, asking Australians to pay for this in their utility bills is very clearly a market failure of immense proportions that demands Draconian regulatory intervention.

But that is not forthcoming because the cartel has bought the Morrison Government.  So much so, that the Government now casually dismisses the increasingly desperate pleading of its own competition regulator.

Meanwhile, the media reproduces the cartel press releases like a busted fax machine caught on repeat.

And that, my friends, is economics Strayan style.

David Llewellyn-Smith
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Comments

  1. It includes the cost of finding, drilling for and building processing for gas. Nothing to do with LNG plants, upstream costs aren’t cheap…

    • Jumping jack flash

      But does it include the inflated wages of the people who require the enormous amounts of debt commensurate with their expectations of lifestyle quality?

      They don’t just give the correct amounts of debt you need to afford a quality lifestyle away to anyone, you know. You need to be eligible for it, and last time I checked eligibility was a function of wages.

      • I’m at a loss trying to understand how a senator can expend so much time and energy fighting for a cause (domgas reservation), and when a positive result is imminent yet not quite over the line, he falls silent and never asks for the task to be completed and hence positive result realised… #Baffling
        I suspect he was paid or blackmailed into shutting the fkc up… I’d love to know the truth!

        • What you call the “truth” depends on your prior beliefs. For the actual truth we’d have to go back to the time t=0.
          Anyhow, it’s also very interesting how Rex got into the Senate, without election. Yet, he has just willingly undermined the party that put him there, by claiming in public that it would fail to win a single seat again. Sounds like he wanted to make sure they don’t. Those seats would have been taken by the LNP if it wasn’t for the CA. I am trying to provide data for you so you can update your beliefs. The total silence on his deal with Scummo is telling, it is data too. My updated beliefs: he’s been bought lock, stock and barrel, which was probably the idea all along.

  2. “When spot prices are low it’s because there’s an oversupply in the market … so they are below the cost of supply,” he said. “To expect us to sell at a cost below the cost of supply is nonsensical.”.

    Does he mean all in cost or marginal cost?

  3. Jumping jack flash

    You need to factor in the price of everyone’s debt bill for their gargantuan piles of debt that are absolutely essential to have into wages, and then consider how wages are paid, and it becomes completely obvious why our cost of living is so high.

    (The necessity for wage theft from 3rd world slaves also becomes completely obvious)

    You simply can’t get the correct sized debt pile from the bank to afford the debt-inflated prices of the essential things in life if you’re paid $8/hour, even at our low, low interest rates. You just won’t be eligible.