For a long time, I fought tooth and nail to change it. But I failed. And now I can only look on with dark amusement as Australia’s energy transition collapses into farce.
The original plan was simple and elegant. We were better positioned than anybody worldwide to do it with the best transitional and renewable energy resources anywhere.
It was to use gas as the transitional fuel to support wind and sun as coal was shuttered, and we waited for clean power storage to catch down in price.
Then, along came the gas export cartel, which trashed everything.
Instead of smooth-running gas peaker power plants to support sun and wind, we had a vicious, China-sponsored export monopoly that stole all the gas and made it uneconomic to use on the east coast.
The insane scab grab since has toppled governments. Ruined industries. Gouged households. Cost the economy hundreds of billions. And, now, derailed the energy transition itself.
The first and greatest failures were those of the Rudd and Gillard governments, which refused to reserve gas at the prompting of the gas cartel-sponsored Grattan Institute.
Grattan’s energy analyst, Tony Wood, was fresh from an executive position within the gas cartel when he made the most destructive economic argument in modern Australian history:
“With more than $160 billion forecast to be invested in LNG production, the export industry is good for the economy. Governments should therefore resist self-interested calls from some industries to reserve gas or cap prices for the domestic market”.
“One reason that reserving gas is a bad idea is that there is no shortage of gas. The challenge is to ensure that the gas gets delivered to where it is required, and this means commercial buyers and sellers need to reach commercial terms on new arrangements”.
“Capping prices for the domestic gas market is a very bad idea. It amounts to a tax on producers and a subsidy for domestic gas users. Protectionism of this sort may provide some short-term price relief for targeted industries, but it tends to mean inefficient businesses and less investment”.
“Ultimately it leads to higher prices and damages the economy for us all”.
The $160bn crowded the car industry into the sea. But that was only the start. The failure to reserve gas as the plants started exporting in 2014 handed the cartel total pricing control of domestic gas markets. They exploited it mercilessly and every manufacturer using gas is either gone or on public life support ever since.
Today, Australia is trying to reverse those industrial losses post-COVID and pre-China war, but failing. Because the gas cartel is still here and still gouging.
But I digress. It was not until 2017 that the gas cartel panic took off. Domestic gas prices far above those paid by the Asian importers of the same gas forced the Turnbull government to attempt to undo the Grattan Institute’s and Labor’s terrible harm by retrospectively imposing domestic gas reservation.
A part of this mad panic was the commissioning of the Snowy Hyrdo 2.0 energy storage project to help accelerate the economy away from the reliance on the cartel. Today, we see where that histrionic policymaking has gotten us:
The cost of the Snowy 2.0 pumped hydro project has doubled within the last six months to be close to $12 billion, according to a new cost estimate, forcing the Albanese government to make a critical and costly decision about the project’s future.
The massive 2000 megawatt expansion of the Snowy pumped hydro scheme was announced by former prime minister Malcolm Turnbull in March 2017 with a completion date of 2021 and a price tag of $2 billion. By May this year that had blown out to $5.9 billion and a 2029 deadline.
Guess what? It’s going to double again before we are done! And let’s not forget that SH2.0 is run by the same bloke most responsible for creating the gas cartel. Chairman David Knox, disgraced former CEO of Santos. Pip pip!
However, that is small beer versus the wider fallout brewing today. The RBA is warning that the collapsed energy transition now threatens Australia’s entire asset inflation business model:
Sky-high energy prices could increase even further if the closure of coal-fired power plants is not matched with renewable generation and storage capacity, incoming Reserve Bank governor Michele Bullock has warned.
The sheer volume of investment required to meet Australia’s target of net zero by 2050 could also push inflation higher over the medium term.
In a speech to the Australian National University on Tuesday, Ms Bullock warned a failure to invest in sufficient alternative generation capacity would pose a major risk to the Australian economy.
Oh, yes. The energy inflation we have seen in the last two years is enough to keep interest rates higher than otherwise. A lot higher if it is mismanaged. Which it is. Don’t forget that gas power sets the marginal cost of wholesale electricity so it has an enormous multiplier effect for inflation.
The Albanese government’s catastrophic failure to smash the gas cartel during the Ukraine War energy price shock has embedded this risk.
Meanwhile, in NSW, we now see the latest outcome for the energy transition itself:
The Minns government’s review of the NSW electricity network has recommended the life of Australia’s largest coal-fired power station be extended by making a deal with operator Origin Energy.
After months of speculation over the future of Eraring, the Herald can reveal an Electricity Supply and Reliability Check Up review commissioned by the new Labor government to assess the state’s transition to renewable energy has recommended the power station’s operations should be extended beyond its existing 2025 closure date.
NSW will use publically subsidised coal as the transitional fuel to no coal. Lol. And, wait for it, the firm it will subsidise is again a part of the gas export cartel, the same that Tony Wood worked for and that which sponsors the Grattan Institute.
So, what is Tony’s and Grattan’s bright idea to fix the now worst-case scenario energy transition collapse? You’re going to love this:
Grattan Institute’s Tony Wood said getting all households off gas was critical to meeting government emissions reduction targets.
“In Victoria it’s the most important bit cause we use gas for heating our homes and therefore, gas use at home is a much bigger volume in the Victorian home, than the amount of gas used in Brisbane, for example, where you might only use gas for cooking,” Mr Wood said.
“Other states will in time have to move down the same path, even though their priorities might be somewhat different in the short-term.”
The Grattan comedians must have a good chuckle about that one. Here’s the chart:
You must pay tens of thousands of dollars to rip the gas out of your walls for next-to-zero emissions reduction. In fact, you’ll be using more coal so emissions will rise.
Meanwhile, the gas cartel burns four times as much gas to dig up and freeze your gas to ship it to China cheaper than you pay for it.
Of course, the pollies love the Grattan’s latest suggestion because they look like they’re about to cure climate change even though all they are doing is sending households a $2ok invoice to create a fig leaf for the failing energy transition.
Finally, we must note that Grattan CEO Danielle Wood (is she related to Tony?) has just been appointed to run the Albanese governments’ hastily convened Competition Review.
Perhaps, Danielle, you can take a ganders at the gas export cartel that your institute helped create?
Thanks for the laughs, Tony and the Grattan!