Courtesy of the Evil Gas Cartel itself and Graeme Bethune’s Energy Quest, which is yet to criticise said cartel, in my experience.
First up the Evil Gas Cartel which pukes lies, distortions and drivel at The Australian:
While commentators lined up to call for gas price caps – some even suggesting a limit of $10/GJ – several east coast gas producers reported results with average realised prices between $8.50/GJ and $13/GJ. For example, Beach Energy said its September quarter price was down 3 per cent to $8.50/GJ. Cooper Energy reported $9.06/GJ while Australia Pacific LNG reported $12.44/GJ, lower than its LNG sales at $19.52/GJ. Earlier, Senex Energy, in its last report before delisting, reported a price of $7.60/GJ.
The gas market is complex and these figures underscore the misinformation about energy and contract gas prices as well as proposals for intervention in the gas market. To get the best outcome for Australia, governments need to recognise the energy system as a whole is under pressure. Effective solutions will need to be found across the energy supply chain, rather than targeting only one part of it.
Yawn. Cherry-picked data. The key to understanding it all is that 90% of the gas is on fixed-term contracts so prices lag for major users. Except for electricity prices which price off spot gas.
More:
Focusing on gas prices in electricity generation is also misleading because coal – now rightly being identified as a major problem given its soaring price – and hydro more often set the price of power than any other energy source.
For example, in the second quarter of 2022, in NSW hydro set the price 48 per cent of the time, coal set the price 34 per cent of the time, with gas doing so only 17 per cent of the time. Along the east coast, gas is setting the power price less than 20 per cent of the time. It also accounts for less than 7 per cent of electricity generated in the national energy market.
Mostly good points. We should be doing exactly the same to coal. But note, again, the cherry-picked data from Q2 only, which predates the massive fuel price spikes and smooths the averages. When the prices got extreme, coal and gas intersected very destructively in the NEM. When coal was too high, power producers pretended to have plant breakdowns, and used more gas which sets the price whenever it is used.
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In terms of gas prices, most business users have supply locked in at lower prices because most of the gas sold to industry is on long-term contracts that cover about 90 per cent of the market. It is important to note long-term contracts were still being offered to businesses at the start of this year for between $6.70/GJ and $9.40/GJ.
Err, we know prices were cheap pre-Ukraine war. Pfft!
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It would also obviously mean less revenue, less profit and less economic contribution for cash-strapped federal and state governments. That means the industry’s strong government receipts – like recent forecasts from our gas exporters of delivering an extra $9bn in petroleum resource rent tax, corporate income tax, state royalties and excise this financial year – will be negatively impacted.
Are state governments such as Queensland, where almost $6bn of gas royalties are forecast in coming years, happy with a price cap to limit the revenues from the gas sales they rely on for revenue in order to build hospitals, roads and schools?
Yes. QLD has agreed to domestic reservation measures. Why? Because the alternative destroys income and wealth for every business and household. How does that help the tax take?
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A price cap is not the only intervention being discussed and each measure or change, even if only threatened, chips away at investment confidence. Whether it be suggested changes to the industry-led Code of Conduct; the recent announced changes to the Australian Domestic Gas Security Mechanism; the additional powers to the Australian Energy Market Operator to intervene in the market’s operation; the ongoing Australian Competition and Consumer Commission inquiry into the gas industry; or the budget’s cuts to carbon capture and storage funding (despite the technology being crucial if Australia is to meet its net-zero goals), each sends a message that rattles investment confidence.
Ultimately, it comes down to simple maths when the numbers needed to make large multibillion-dollar, capital-intensive investments stack up financially frequently change and the policy environment shifts again. And it doesn’t just risk new investment and supply – it risks the associated and substantial economic, emissions reduction and energy security benefits of that supply.
It is ironic that the source of much of the debate around gas prices and intervention at the moment is Australia’s world-leading LNG export industry.
…In little more than a decade, the gas industry invested over $300bn in seven new LNG projects, which are now set to produce record-breaking export earnings of $90bn this financial year. Critically, this investment was supported by positive investment policy environments from federal and state governments in Queensland, Western Australia and the Northern Territory that laid the foundations for the returns we see today. These governments and their constituents are reaping the benefits – the projects are underpinning our domestic energy security, delivering billions in new revenues and supporting thousands of jobs.
Wow. It’s not ironic. It’s appropriate. The cartel lied to build so many projects. It has been a world-beating gouger of the local economy ever since. The only irony is the staggering chutzpah of demanding it is allowed to do it again.
As for gas sector confidence, if current operators are such a pack of pansies then piss off and let real men invest. At $10Gj and 100% markups, they will flock!
As for the cartel providing us “energy security”…well…why is the nation having this discussion then?
Time to ban APPEA from the media. It is a serial liar.
Over to Graeme Bethune and his cartel-cheering Energy Quest also at Murdoch:
A price cap for Australia’s domestic gas industry would kill off LNG imports and delay big projects including Santos’ Narrabri development, consultancy EnergyQuest said, while forecasting tariffs would remain at elevated levels for the rest of this decade.
STO has already said that Narrabri makes money at $7Gj. At $10Gj it’s creaming it. If it were to pull the project then you hit it with “use or lose it legislation. Then auction it off to real men or develop it yourself in a public gas corporation. Either way is good because you have helped break the cartel stranglehold on supply.
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The stark warning may spook the Albanese government as it considers implementing a price cap on the east coast gas industry aimed at providing a quick fix for manufacturers who say factories may shut unless prices ease.
Only if it is an idiot. So, probably.
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Big users have been calling for a $10-a-gigajoule cap, well below current market prices, but LNG importers including billionaire Andrew Forrest would lose money at those rates. Major developments including Santos’ Narrabri project in NSW could also be sidelined, leading to a year of domestic supply being lost or delayed through introducing the cap.
“We estimate that introducing a $10GJ cap could remove or delay the equivalent of more than one year’s east coast domestic supply – 700 petajoules – in less than eight years. It could not only kill LNG imports but also development of the Narrabri gas field in NSW and the Beetaloo field in the NT and inhibit the development of much of Arrow Energy’s acreage in Queensland.”
Err, LNG imports are already dead. The local price is $23Gj. The Asian spot price is double that. The only way to undercut the local price with imports right now is to divert contract cargoes sold on oil-linked prices but that’s restricted by end-user provisions in the contracts themselves.
In effect, EQ is demanding that the local price be immediately doubled so that we can import LNG for $40Gj, which will double power prices again, send interest rates directly to 5-6%, trigger a house price crash, force a bailout of the banking system, wreck the budget, and trigger a second Great Depression. Nice.
As well, who said the gas price cap had to be in place forever? It is a Ukraine War fiscal equalisation mechanism. If and when the war passes and global gas prices drop then it can be dropped too.
Finally, Arrow has plenty of cheap gas to supply locally. Send the costlier stuff overseas!
More:
…“Chinese, Japanese, Korean and Malaysian LNG buyers would have to be willing to divert 195PJ – 17 per cent of Queensland exports – of gas that they have already paid to develop for the LNG export terminals, into the domestic market,” EnergyQuest said. “That is not something they are likely to be happy about and a move that would put Australia in the same league as Argentina in terms of sovereign risk.”
They formed a cartel so that’s just too bad. If our allies want energy security then they must acknowledge that we need it too or there is none for them.
Defending market functioning and competition is the opposite of Argentina. Cripes, these people are dumb.
And here’s my favourite:
“Direct government budgetary assistance to those most at risk is likely to be less vulnerable to long-term unintended consequences than price regulation,” Dr Bethune said.
Oh yeh. Tax Australians more and give the money to Bethune’s cartel mates. Great outcome!
