Once upon a time, there was a land of vast sweeping plains, golden beaches, and boundless cheap energy.
That land no longer exists.
In its place is a land of droughts and flooding rains that worsen each year, fuelled by the world’s most expensive energy.
It may be difficult to believe, but east coast gas prices were the highest in the globe last week.
Gas prices in Australia hit around $19 gigajoules (Gj), whereas it was around $14Gj in Asia and Europe:
Surprisingly, millions of tonnes of Australian gas are also circling the globe without a consumer.
Forget Vladimir Putin and his pipeline extortion of gas-short Europe; instead, we have Australia’s east coast gas cartel’s treacherous activity.
When the gas cartel built its LNG export plants in Queensland, it significantly overestimated gas availability.
When the facilities launched in 2014, they drained all spare reserves from the broader market, causing Australian gas and power prices to skyrocket.
By 2017, we were paying more for gas than our Asian consumers. With domestic reservation rules, the Turnbull government reined it in.
When the Ukraine War broke out, the Australian gas cartel strangled the local market, imposing war-profiteering prices that were 20 times higher than historical averages.
The Albanese government dallied for six months before toughening Turnbull’s policies by imposing price caps of $12Gj.
For a while, this worked. However, the gas cartel is a villain. It went dark for a few months before resuming its refusal to sell gas below the cap.
This is intended to put pressure on the Albanese government to back down on its regulatory push in the sector.
Unfortunately for everyone save the gas cartel, the price of gas determines the price of electricity on the east coast, therefore power costs have risen too:
Wholesale power prices are currently three times what they should be above $150MW/h.
This corresponds to a 60% increase in utility prices for everyone, outweighing the previously announced budget energy bill subsidies by more than two to one.
It doesn’t take Albert Einstein to see that this is terrible for inflation. But even he would recoil at how horrible things have gotten.
Even after accounting for the government’s Energy Price Relief Plan, unveiled in the budget, utility costs will rise by another 30%, adding 1.8% directly to the CPI over a year.
However, because energy is used in everything, the spillovers will be considerably greater because everyone who can pass on this expense will do so.
It might be as much as 3.5% added to the CPI.
Much of the recent increase in energy costs occurred after the most recent Reserve Bank of Australia (RBA) meeting, but even then it was alarmed.
Energy prices were predicted to rise in the future years, even though the government’s Energy Price Relief Plan would limit the magnitude of the rise in 2023/24 and provide targeted assistance to low-income earners and small enterprises.
The RBA expected the Albanese Government’s bill subsidies to reduce inflation by 1% or more. Current prices will easily outpace that to the upside.
Either the Albanese Government gets serious about finally dismantling the gas cartel, or it will break everything else.
This includes the price of your home.
