This a great chart. It is the ACCC’s LNG netback price versus the Aussie gas spot price (as best as I can transcribe AEMO’s appalling data):
What this chart shows you is how the Evil Gas Cartel operates.
The netback price of LNG is a measure of export gas prices minus the costs of freezing and shipping it. It is typically used to gauge the appropriate price for Australian spot gas since it was attached to global markets in 2014 with the opening of QLD LNG export plants.
In mid-2021, the netback price was soaring because of an energy shortage in China and other supply-side hits from COVID.
Yet the Australian gas price did not track it higher as it normally would. Why? Because, at the time, Australia was in and out of lockdowns and the Evil Gas Cartel decided to play nice lest it become a target for popular fury by delivering an energy shock mid-pandemic.
Come February 2022, gas netback prices were set to ease. China had resolved much of its coal crisis and COVID was waning elsewhere. But then Russia invaded Ukraine and this time the Evil Gas Cartel knew its moment had arrived.
With the Aussie economy now reopened and COVID passing, the Evil Gas Cartel used the Ukraine War as the excuse it needed to send Aussie gas prices to the moon.
There were no market differences between the two periods of high netback prices. Only how the Evil Gas Cartel responded to them. This tells us that it has absolute control over prices. The stories about shortages and volumes are just cover. There’s plenty of cheap gas. The Evil Gas Cartel decides the price based on the calculus of what strain its social license to operate can handle.
The second story that this chart tells is about the work of Resources Minister Mad King. As prices soared in July, the government commissioned an ACCC report into gas cartel gouging. That brought the price down to still nosebleed levels,
Then, in August, Mad King lumbered into negotiations with the cartel. Several months later in this supposedly “urgent” process she emerged with a new Australian Domestic Gas Reservation Mechanism (ADGSM). The new deal licensed the cartel to lift prices to export netback, some 230% higher. Somehow, Mad King claimed it was a win for the Australian people.
Is it any wonder that the Resources Minister then fled into hiding on a WA gas platform where, doubtless, she was feted as a public policy genius:
So, why hasn’t the cartel used Mad King’s new netback price guide to triple the price since?
Well, it’s early days. Why jeopardise future super-profits now that they have permission to deliver them? The cartel will wait for the next excuse – more war, a cold winter, a butterfly flapping its wings.
As well, it is clear that the cartel’s social license to operate is still in jeopardy. This is because of the pressure applied by the likes of Industry Minister Ed Husic, the manufacturing lobbies, unions, MB coverage etc. Even Mad King joins the chorus today, freshly returned from her gas industry junket with a nudge and wink:
But, the proof is in the pudding. Gas prices are still more than double what they were before the war. Reports from manufacturers aiming to secure supply are that prices are much worse still behind closed doors. If sustained, the new price baseline is hovering around $20Gj, more than double pre-Ukraine War prices.
Just look at what else the Evil Gas Cartel is doing. Having pocketed Albo’s cowards without raising a sweat, it is moving to castrate the regulator:
Large LNG producers and energy suppliers represented by industry body APPEA said increasing AEMO’s functions and powers to manage supply adequacy in the east coast gas market was unnecessary and harmed the industry.
“Little evidence is provided in the consultation paper of market failure in the east coast gas market that would justify the level of intervention proposed by this legislative package,” APPEA said.
“Consequently, government intervention through AEMO is likely to result in a sub-optimal outcome for energy users and participants. The Australian east coast gas market is mature and functional; the market will ensure there is enough gas.”
The gulf between what Albo’s cowards are saying in their media briefings and what the cartel is delivering is as wide as ever.
The main reason is that the Evil Gas Cartel has captured Resources Minister Mad King and it has no reason to take the government seriously.
If you want cheaper gas then sack Mad King.
