For much of last week, the Albanese Government ignored the once per fifty-year energy crisis.
Then, when forced to acknowledge its existence, it denied the availability or need for solutions.
Then, when yours truly threw a truth bomb into News.com mid-week and led ABC News with the story that a gas cartel is war profiteering, Albo’s cowards began to sniff that something may be up. That they might need to do something. And began walking back comments on domestic reservation for energy.
Over the weekend, the communications chaos continued with Bovver Bowen talking with forked tongue:
The Government will convene a meeting of state and territory energy ministers to plan out the response to the impending energy crisis, with the country facing the “perfect storm” on gas supply in particular.
…He said the gas trigger that could be put in place by the government to divert gas exports to domestic use was a “blunt” instrument, which wouldn’t be used in the near term.
While stressing Labor would not “rule anything in or out” in addressing the energy crisis, Mr Bowen said the trigger would not address the short-term problem.
“(Resources) Minister Madeleine King would have to go through a long series of consultations under law before it would apply and it wouldn’t apply until 1 January … there’s a lot of work there that Minister King will need to consider,” he said.
“In the short term, it (the trigger) is not the answer to this short-term crisis.”
He said Labor would ensure all necessary energy supplies were coming through, “whether they be coal or gas” and then planning for a transition in the long term towards more secure energy supply with the use of renewables.
Mad King is talking nonsense
Resources Minister Madeleine King has said coal-fired power generation must step up to help reduce soaring energy prices, as she cast doubt on pulling the so-called “trigger” to force export gas into the domestic market.
Describing the energy price spike as a “perfect storm”, Ms King said big gas producers were doing as much as they could to maximise supply, and it was important that coal fill the void to push energy prices down.
“It’s equally important for the coal industry to resolve its issues to get coal production back online as soon as we can, so it can continue to participate in power generation during this cold snap,” Ms King said in an interview with AFR Weekend.
“There are important issues with coal supply that have to be resolved because a great deal of the power generated for consumers in NSW and Victoria is from coal-fired power stations.”
Bringing more coal-fired electricity production back online won’t drop prices.
The main problem is fuel prices, not power availability (which is temporarily short on some turbine shutdowns).
Gas and coal prices are joined at the hip because they compete to produce the same product: electricity. The following chart is JKM gas futures versus SGX coal. Periods of divergence are brief, it is the trend that matters:
If Australia lurches back to more coal-fired power instead of gas-fired, electricity prices are not going to fall. Indeed, they could rise even further given the Eurozone does not even ban Russian coal until August which is why futures prices have been jumping.
The main problem the Albanese Government needs to address is that Australian exporters of coal and LNG are imposing war-profiteering prices upon our utility systems. For VIC and SA it’s more a gas issue. For NSW and QLD it is more a coal issue.
These shoddy billionaires are not doing so because they made smart investments. They are doing so because Ukrainians are being slaughtered leading to sanctions on Russia and an energy price windfall.
So, why is the Mad King telling them that there’s no way that Labor is going to limit exports for either commodity when it must do so to both?
Come Monday, she is not!
Ms King previously played down the prospect of activating the trigger, but told The Australian Financial Review on Sunday the need to extend its operation provided an opportunity to reconsider how it operates.
“It would be pertinent to have a review of the mechanism itself,” she said. “People will bring submissions in and everything can be on the table from the start, and we will try and design a better mechanism.”
The changes could come into effect in the second half of this year, though Ms King stressed potential changes were a medium-term fix: “Any review of implantation of the gas security mechanism will not help resolve the current crisis facing NSW and Victoria,” she said.
Ahead of flying to Indonesia on Sunday, Prime Minister Anthony Albanese mocked the Coalition’s “gas-led recovery” rhetoric and said after nine years of inaction the current issues would not be addressed “overnight”, while Opposition Leader Peter Dutton accused Labor of not knowing what to do.
Energy Minister Chris Bowen dismissed the criticism and described the current situation as “a perfect storm” Australia was “ill prepared” to deal with. He also said the Coalition’s gas trigger was “not particularly effective”.
Mr Bowen said Labor would consider all “sensible measures” to improve energy supply, including establishing a gas reserve on the east coast similar to Western Australia. He will chair a meeting of state and territory energy ministers on Wednesday to discuss short- and long-term solutions to the current crisis.
If sensibly handled, such policies will only drop the price of the 10% of gas volumes and 17% of total thermal coal volumes that remain in Australia. The rest can keep making hay in export markets.
This brings me to the real problem for the Albanese Government. It must drop gas and coal prices urgently or another accident is coming fast: an energy shock delivering an extra 5-10% CPI in the next two years:
Mr Fabo said households would be worse off with higher gas and electricity prices. “If utilities prices rise circa 20 per cent over a year, that’s a 1 percentage point boost to inflation and a drag on real income growth,” he said.
Deutsche Bank chief economist Phil O’Donaghoe said higher gas prices would add about half-a-percentage point to inflation by year’s end, while AMP Capital chief economist Shane Oliver tipped a rise of 0.2 of a percentage point. Dr Oliver also said higher prices could knock off up to 0.2 percent from GDP.
Mr Fabo said utility bills accounted for a higher share of lower-income households, who also had not built up the “excess savings” buffers of higher income households.
Owing to contract delays, the energy shock will persist for years, with an extra approximately 0.5% or more inflation (once we add spillovers) every quarter like clockwork.
This means that the RBA will be handed the impossible goal of crushing domestic demand to “make room” for the energy war-profiteers’ price rises.
Nor will the RBA be able to “look through” the shock because the nature of energy prices is to bleed into the cost base of every goods and services provider in the economy.
The economy is not structured to accommodate this shock meaning a large adjustment is likely.
We all know where higher interest rates will hit first and hardest: property. The cash rate required will have to be high enough to destabilise the Australian household debt mountain, bursting the property price bubble which is already popping on a $500bn fixed-rate reset from hell.
The Australian banking system will follow both into the crushing embrace of the energy singularity and recession smash what’s left while the RBA is forced to continue to hold rates too high to fight relentless energy price inflation.
The Australian economy is a simple income and leveraging mechanism. We sell dirt to the world for income and then our banks leverage the cash flow in global markets to inflate house prices and drive services economy spending.
If the energy cartel is allowed to run riot, the mechanism is going to reverse. We’ll be denuded of income for our dirt while the world ceases to lend to us for house price gains.
In short, energy war-profiteering will DESTROY the politico-housing complex that is the nucleus of the contemporary Australian economy.
