The MSM is full of celebration today for the triumph of Mad King, basically just reproduced from her press release:
Australians will be paying historically high gas bills for years despite the government striking a deal with major LNG producers to prevent domestic supply shortfalls, with experts warning the early closure of coal-fired power plants would put the stability of the electricity grid at risk.
Resources Minister Madeleine King warned on Thursday that gas prices would not return to pre-Ukraine war levels of less than $10 a gigajoule despite LNG exporters agreeing to provide an extra 157 petajoules for the domestic market in 2023.
With the government facing pressure from the Greens and environmental groups over new fossil fuel projects, Ms King also cast doubt over the future of new gas developments in Australia and backed greater investment in renewables to deliver the nation’s future energy needs.
Announcing a deal with east coast LNG exporters to shore up domestic supply next year, Ms King said the heads of agreement – signed by Australia Pacific LNG, QGC and Gladstone LNG – would ensure “Australians continue to have access to secure and reliable gas”.
“Given the agreement means the projected shortfall will be avoided, I am satisfied I do not need to take steps to activate the Australian Domestic Gas Security Mechanism,” she said.
She added there was no doubt that prices were “very unlikely to return to the low points of like $6 or $8 or even $10”.
“I do expect with the increased supply that there will be downward pressure on prices,” she said.
Well, Mad King, you’re going to be disappointed, and the fact that you say prices are going to fall strongly suggests that you have no idea what you’ve actually done.
The added supply is material and would lower prices if it were definitely going to remain in the east coast market. But there is no reason for it to do so.
As the new ADGSM stands, the cartel only has to offer the gas at LNG netback prices, so it will be offered at LNG netback prices. There is no competition to deliver any price falls.
That price is today at…wait for it…$80Gj (up from today’s $20Gj):
No manufacturer is going to pay that price. They will go under. Electricity producers will have to pay and the NEM will once again be suspended by all kinds of gaming as gentailers try to limit the damage to margins with power prices back to $600, $700 or $800MWh.
At some point, it is going to dawn upon state governments what has just happened and they will move in with subsidies for businesses and households. So, Australia will be borrowing heavily to subsidise the energy bills that fund the energy cartels. Another outrage that has already begun:
“The new Gas Heads of Agreement agreed to by the Federal Government may avoid a shortfall of supply but leaves east coast Australian industry facing back-breaking gas prices for the foreseeable future,” Innes Willox, chief executive of the national employer association, AiGroup, said today.
“The agreement is crushingly disappointing for Australian industry reliant on gas to make the products that Australians need. As they roll off existing gas contracts, Australian manufacturers of bricks, chemicals, plastics, paper, aluminium, steel, fertlisers, cosmetics, gloves and masks will increasingly face crippling energy bills they will have to pass onto consumers.
“The Heads of Agreement seeks to ensure that local prices are no higher than international levels. But there is nothing in it that will see local prices fall below international levels either. In the wake of Russia’s invasion of Ukraine, the cutoff of Russian energy exports to Europe and Europe’s desperate efforts to secure replacement gas around the world, international gas prices have soared to unprecedented levels. Eastern Australia is completely exposed to those prices. Our wealth of gas production and our long-standing bipartisan national energy policies provide no shield against them whatsoever.
“The ACCC export parity metric recognised in yesterday’s Heads of Agreement currently indicates local spot gas prices of between AUD$60 and AUD$70 per gigajoule over the next year. That would be around 20 times the average price before East Coast exports of Liquefied Natural Gas began, and around 8 times the previously expected export parity range.
“Most gas is bought on longer contracts, not spot, and those prices will be somewhat lower. But even so, we are looking at serious and deeply painful increases in the cost of many basic products, of heating homes in winter, and of much of the firming capacity on which our electricity system currently relies.
“The Government’s ambitions for managing inflation, growing industry and transitioning to clean energy are threatened by these gas price rises.
“The agreement may have sidestepped the gas supply shortages for 2023 foreshadowed by the ACCC. This is welcome. However, more risks open up later this decade, and more action will be needed both on supply and on demand efficiency and substitution to respond.
“High Australian gas prices have now been locked in. As a result, the Government will need to take the kinds of expensive but urgent steps we are seeing in Europe to financially support energy users – to help them weather the storm and reduce their exposure to the costs of gas. That will not be cheap. The costs of inaction will be higher,” Mr Willox said.
I expect that the RBA will also be forced to “look through” the utility bill shock because not doing so will destroy the economy entirely. The inflation spillovers will still be a big problem.
I have no idea what’s going through Mad King’s head, nor the bureaucrats that allowed her to sign this Australian economic death warrant, but the new ADGSM agreement explicitly spells out only that the Evil Gas Cartel has to make the gas available at LNG netback.
And now that Mad King has triumphantly secured Australia’s own gas at prices that nobody can afford through a laborious policy process, the government will be all the more hesitant about revisiting the issue.
In the final irony, there won’t be a gas shortage because demand will collapse with the economy.
