Alarm! Gas cartel threatens imminent Great Depression 2.0

I have noted repeatedly that the recent improvement in local gas and electricity prices is largely thanks to one of the six Curtis Island LNG export trains being shut for maintenance through August. This has freed enough gas to drop the local price.

The gas price over the weekend was still averaging around $19Gj, one-third of former peaks but still triple pre-Ukraine prices.

As we know, the gas price sets the marginal cost of power in the National Electricity Market (NEM) so that price has duly followed gas down:

However, the outlook has turned catastrophic. Morgan Stanley:

Increasing concerns about a complete European gas shutoff received a boost on Friday when Gazprom – a Russian majority state-owned multinational energy corporation – announced that natural gas flows via the Nord Stream 1 pipeline from Russia to Germany will be halted between August 31-September 2for maintenance.

The release mentioned that flows will be restored at 33 mcm/d – the current level – “upon work completion and absence of technical malfunctions of the turbine”. So far this year, Europe – and Germany in particular – has made significant progress in building up natural gas inventories for the winter heating season (see Exhibit 2). Nevertheless, investor concerns about a complete shutdown remain.

Remember that a complete cessation of gas flows would mean Eruope ran out of gas in a matter of weeks, irrespective of its storage levels.

This fear is triggering intense competition between Europe and Asia for LNG cargoes pre-winter. Last week, the Japan/Korea Marker (JKM) touched USD60, and even higher for the same month in 2023, as futures barely fall between now and then:

If these prices are brought back to Australia by the export cartel, and they will be within days as Curtis Island LNG trains resume full operations, then we’ll soon be seeing $90Gj gas prices on Australia’s east coast.

That will instantly deliver a National Electricity Market price of around $1000MW/h:

The Australian Energy Market Operator (AEMO) no longer has gas price caps in place. Its $300 power price caps may be lifted to $600, yet gentailers and energy retailers will still go bankrupt in droves. The regulator will be overrun as money-losing generators are shut down and the power price may go even higher still.

The impact on household and business utility bills will be in the order of a 600% increase over a year. This will add around 20% to the CPI over 2023. Over two years, it will be more like 30-40% as every single business east of WA (which will be unaffected thanks to its domestic reservation regime) tries to pass on the cost spike.

The RBA will be forced to hike in 200bps increments to an unknown but clearly catastrophic terminal rate. House prices will crash at 5% per month and the banking system go under in short order. Real incomes will crater to 1990 levels.

The Second Great Depression will erase thirty years of Aussie economic gains. This is only so we can make room for an economically vacuous and openly criminal war-profiteering gas cartel.

I know this is all hard to believe. Undoubtedly the numbers will be wrong but what is so terrifying is that they can be erroneous by multiple standard deviations and still deliver the same living standards calamity.

Reality waits for no man and this shock is going to begin in days if Albo’s cowards don’t do something.

Are they ready? It sure doesn’t sound like it. The cartel is busy bragging about its capture of the Resources Minister, Mad King, and PM Albo is focused on fixing inflation where there is none:

When asked about his biggest challenges in an interview with Sky News on Sunday, Albanese cited the need to rein in “cost of living pressures including childcare, housing and healthcare costs.” He echoed advice from the Treasury Department and Reserve Bank that inflation won’t hit 10%.

Prime Minister Anthony Albanese must immediately take two steps to bulwark the nation against this imminent threat:

• Declare a national wartime energy emergency and stop all Cabinet communications with the gas cartel.
• Impose a wartime export levy on the gas cartel benchmarked to pre-Ukraine war prices that sinks the local price and collects the windfall export profits for Australians.

If a tremulous Albo is not up to this basic national interest task then at minimum he must insert a $7Gj gas price trigger into the Australian Domestic Gas Security Mechanism (ADGSM) written into law.

This is a wartime national emergency. A white-collar mafia is war-profiteering off an evil dictator and combined they risk wiping out the Australian economy and everybody within it right at the moment that we should be reaping the greatest income boom in history from an abundant natural endowment of gas.