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.