Liveras: Break gas export contracts

Finally, after a few years of schmoozing with the Morrison gas cartel, Andrew Liveras is talking sense again:

Andrew Liveris, the man chosen by Scott Morrison to direct a gas-led recovery during the Covid-19 pandemic, says the new government should intervene in the gas market to deal with the energy crisis – even if it means breaching international contracts.

“I’d start it immediately. Malcolm Turnbull did this. It wasn’t popular at the time but in times of crises, domestically I would put in export controls on the gas guys,” he says. “There will be screaming. The gas guys would hate that but you know what? They make a ton of money because they are exporting low-cost gas and the price is the international oil price. Imagine the margin they are making.”

The point of the gas-fired recovery, says Liveris, was to help insulate the Australian domestic market from international price volatility. Unfortunately, execution of the strategy – including the release of newly permitted gas on land and more pipes – has been at a glacial pace.

Liveris says this has left Australia exposed to the “Dutch disease” where the domestic price is driven by the international price because local supply and demand is not in balance. He insists he has never favoured price setting or subsidies for manufacturers.

However, he believes today’s energy crisis calls for stronger action. Specifically, he wants a domestic reserve of 15 to 20 per cent of gas produced across the east. In Western Australia – which has a longstanding domestic reserve – gas is far cheaper.

“You just do an allocation and cap the amount that you export because this is the problem. We export 95 per cent of our gas,” says Liveris. “I wouldn’t subsidise. I don’t think you have to.

“I’d rather set some export controls, allocate a percentage of the gas domestically, do a reservation scheme and get us through this temporary issue.”

…Liveris acknowledges that intervening could trigger a force majeure in export contracts and penalties might need to be paid. “We have always been afraid if we do a government-mandated intervention that the IOCs (international oil companies) will say Australia is a risky place to invest,” he says. “That is a downside and yes, maybe there is some compensation through international arbitration. I want us to be the country that we are, a AAA, very low risk country to invest in, so it is unfortunately going to be a little bit of a black eye,” he adds.

Too right. This is a national security crisis first and trade niceties are a long second.

If you stuff around you will get stuffed. Like this:

Santos and Beach Energy will spend tens of millions of dollars to drill extra wells in South Australia’s Cooper Basin as they bring on additional gas supply and seek to avert the threat of potential domestic price controls and LNG export restrictions amid eastern Australia’s energy supply crunch.

The partners on Sunday committed to bringing another drilling rig to the basin to drill the wells. Santos said the project should deliver another 15 terajoules a day of gas by the end of the year, with the first supplies due within the next few weeks.

Extra gas for the overstretched east coast market is also expected to be made available starting in mid-June from planned maintenance work due to take place at two LNG export venture in Gladstone, at Shell’s QGC plant and Origin Energy’s Australia Pacific LNG venture.

One rig and extra gas from previously planned shutdowns. Get stuffed.

This is pissing on Australia while calling it rain. This unconscionable behaviour is not new. Way back when Santos first commissioned its LNG export trains for Curtis Island, the then CEO said and did the following:

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 short, Santos miscalculated its own gas reserves and over-invested in LNG capacity. When it found itself short, it vacuumed up all of the third-party gas that was supposed to supply Australia and exported that as well.

The long-term pattern of destructive and monopolistic behaviour goes to the conclusion that Santos is a dangerously rogue firm deserving sanction.

The Australian Government should nationalise Santos. The rebadged firm, Gas Australia, can then operate as a public corporation with a remit to supply Australia with gas at a reasonable rate of return at the price of $7Gj. This will then benchmark the entire cartel for local prices.

GLNG partners can keep exporting without the 30% Santos share. It will need to declare force majeur on some contracts.

Nationalising Santos will have other benefits too. It will reassure the public that the forthcoming Narrabri gas project won’t poison the entire Great Artesian Basin after Santos also managed to duck the sixteen environmental restrictions recommended by the NSW chief scientist for the project.

It will prevent the firm from pursuing ludicrous “blue hydrogen”. A filthy form of new “clean fuel” that is busy ruining Australia’s climate credentials all over again.

And it will scare the bejesus out of the remaining carteliers plus the coal sector which is where the next fight is going to be over war-profiteering.

Australia could just seize Santos’ 30% share of the GLNG export plant and shut those volumes down.

Or, we could part-nationalise or part-acquire Santos. Expropriate a 20% stake and take board seats to match. Sack management and parachute in some national interest folks instead.

Or, we could just take the whole damn thing.

This may seem a draconian step to some. But that’s only because we’ve all been boiled frogs through a near-decade of steadily increasing gas cartel abuse. In the harsh, cold light of day, this is a national security crisis. A gas cartel is war profiteering by over-shipping gas to China, our major strategic rival. All households and businesses are being pilfered. The banking system is at risk from the resulting inflation and asset price crash. The cartel pays next-to-no tax. The sovereign is being gutted.

Finally, the gas shortage will only get worse from here as the Bass Strait runs dry into the mid-2020s. We need a structural solution or this is going to happen again and again and again.

Houses and Holes
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Comments

  1. TailorTrashMEMBER

    China must be having a right old larf at straya as it builds the tools for its domination from its iron ore and gas .

  2. Which is the bigger sovereign risk, the risk margin an offshore oil company sticks into a project DCF or the ability of your population to access basic energy needs at a price commensurate with the the nations incredible commodity reserves?

    The answer to that question should be very simple for a politician that represents voting constituents, but will require all sots of ifs, buts and maybe’s for those that represent their own / lobby interests.

    • Display NameMEMBER

      I am just outraged that it has got this far and no-one has acted on the countries best interests. A decade of gouging and no-one could be bothered to take real action. This would not even be a discussion in the US.

    • drsmithyMEMBER

      Do we have any national interest folks?

      If it’s good for coal & gas, it’s good for Australia. Right ?

  3. Oh Totes where art thouMEMBER

    The Australian Government should nationalise Santos.

    The government will barely pull the ADGSM trigger let alone contemplate something as bold at nationalising something in the national interest. Won’t someone please think of the scare campaigns^^^

  4. Australia: we hyper-inflate what we need, which we already have, and sell it back to ourselves.

    Albo, Bowen: hurry up and act; families are being forced onto the streets whilst you wonder…

    And, you know what? You’re afraid of markets and reputation – but don’t be. it would be a small shock only – we just don’t consume enough of the world’s gas, nor our own. Further, the market won’t worry about interventions if you pull the ADGSM trigger and then LEAVE IT IN PLACE FOREVER (reservations should already be in place!!) …the market will be fine because it knows the new status quo, and will then get on with things – no more shocks to worry about, so get on with it.

    The miners are having you on.

  5. TheLambKingMEMBER

    “We have always been afraid if we do a government-mandated intervention that the IOCs (international oil companies) will say Australia is a risky place to invest,”

    Ha Ha Ha. Mate, Oil (and gas and coal) companies are just about to NOT BE ABLE TO INVEST in Australia! 🙂 There is no risk to us. Adam Bandt and the Greens have said they will support pretty much any Labor legislation if Labor mandate no new fossil fuel investment. We already have enough coal & gas reserves.

    • Display NameMEMBER

      There are just so many politically stable countries with trillion dollar economies and skilled work forces where you can work profitably. Maybe they should try China, any African country or South American for that matter. Sure there are options but not very many with the same risk profile even after we act to stop the gouging. We might actually get some value out of our commodities going forward. What a strange idea.

  6. Blue hydrogen isn’t filthy. Using fossil fuels to produce hydrogen can potentially reduce emissions from fossil fuels by harnessing the 90% efficiency of fuel cells vs <30% efficiency of the ICE engine. It's literally no different to powering up your electric car overnight on coal energy. The hydrogen cycle is the only way forward and the sooner we move there the sooner we can replace the ICE engine with its toxic combustion products. (Which fossil hydrogen production eliminates.) Once you have cheap energy (likely thorium nuclear cycle) then it may be viable to produce hydrogen electrolytically. However hydrogen from water will always be the most energy intensive production mechanism as water is the most oxidised form of hydrogen. Of course resources scarcity will eventually make it viable.

    • TheLambKingMEMBER

      That is ridiculous.

      When gas was cheap we had gas powered cars which is much more efficient and cost effective and better for the environment than using gas to produce (blue) hydrogen to put into cars to burn!

      We already have incredibly cheap energy – wind and solar. It is so cheap that on a lot of days they PAY YOU to consume it with negative wholesale prices during the day. No form of nuclear energy will ever be cheaper than Solar (which is halving in price every 7-10 years still.)

      • Solar has on 25% efficiency due to limited daylight hours. It also isn’t practical unless you are in a sunny climate. Nameplate capacity cost comparisons are bogus because they fail to account for the time generators actually run. At least solar tends to meet demand spikes, but it is not dispatchable. Yes cheap gas is more cost effective to run in Ice car, but we are not talking about price, we are talking about CO2 output per unit of work done. If the energy cost of processing to H2 is less than 60% of the energy form the fuel cell then the CO2 to work ratio is decreased, ie a net win if you think CO2 is a problem. Batteries simply lack the energy density to replace all ICE engines, H2 in a fuel cell engine is 2.8 times more energy dense than petrol, although using a carrier molecule with the same net density of fuel is likely a good solution to overcome the liquid hydrogen issues. It may also significantly reduce the cost if you don’t need to run a pressurised system. Transitioning to Hydrogen is both practical and inevitable, Oil is running out and has many other valuable uses. What the cheapest energy source is to generate that hydrogen will depend on price plus chemistry. Fossil fuels have a energetic advantage for hydrogen production over water, but water is a lot cheaper feed stock. At some point the economics switch from on to the other due to scarcity. (which is independent to CO2) Thorium reactors are energy dense and potentially low cost because they are small and modular. (but lots of engineering hurdles to overcome in making a breeder reactor.)

  7. turncoatMEMBER

    Well Queensland might just object to bailing out the Southern states who have prevaricated on developing on shore resources until way too late. Yes Narrabri has some issues – but have you ever taken a look at what draining coal seams in Queensland does? NSW and Vic have “been too posh to push” and now are gonna have to “suck it up Princess”

    • TheLambKingMEMBER

      You do realise that the Queensland LNG plants have been hoovering up all the Southern gas? NSW & Vic could nationalise their gas fields and stop the gas travelling via the pipes to Queensland and then there would be no export industry!

      • turncoatMEMBER

        Only 5% of NSW gas consumption is locally produced. Victoria has restricted on-shore exploration.

        You reap what you sew.

        • BoomToBustMEMBER

          We don’t need more gas, we need to give our citizens in Australia access to the natural resources our country has, they need to be cheap and easily accessible to everyone. Cheap gas, cheap coal, with lots of new ultra efficient coal fired power stations.

          Or we could keep running the delusions of shutting our last coal fired power stations to save the world while countries are building more and using our cheap coal to power them. How awesome are we!!

  8. “It will reassure the public that the forthcoming Narrabri gas project won’t poison the entire Great Artesian Basin”

    WTF?

    How exactly?

    You cant un feck something like that.

    The intellectual hubris of the geologists facing these fracking projects is extraordinary. Grotesque vanity with puddle deep substance.