The policy process in Canberra is broken.
The government of the day refuses to budge on any national interest reform that threatens vested interests.
As the polity grows increasingly agitated due to this inaction, the vested interests realise that their social license to operate is under attack. Over time, it is a risk they cannot ignore.
This forces Canberra to move because even the vested interests it protects become alarmed by deteriorating community support.
Canberra then follows vested-interest reform suggestions.
This produces the bare minimum “fake” reform designed to douse the fire of community anger, rather than properly restructuring whatever the problem is.
Then rinse and repeat.
Australia’s gas policy failures highlight these dynamics.
After a decade of destroying the East Coast economy, the LNG export cartel has recently campaigned to reform itself, and Albo’s cowards are following.
…Labor is trying to navigate a line between the demands of struggling manufacturers and the gas industry. Some manufacturers want the government to forcefully divert gas from Asian LNG export markets and implement price controls. But the gas industry argues such measures could deter investment in new supply, or interfere with valuable long-term LNG export contracts.
“A direct export permit system would target the exporters who actually created this shortage,” [AWU] Farrow said.
…Gas industry sources said on Friday that the government appeared to be considering two options for the design of a reservation system.
They said one was a permitting system for LNG exports—imposed on APLNG, Shell’s QCLNG venture and Santos’ GLNG–that would be tied to obligations to supply the domestic market.
A second option involves a broader system that would also cover producers which only supply the domestic market. That would be more complex but offer more flexibility to exporters to meet their domestic obligations.
A third option could be a hybrid system, they said, adding they expected a high-level announcement from Labor, with the details to be determined next year.
…That “Goldilocks” amount could be 30 petajoules a year of additional supply, according to analysis by adviser EnergyEdge, which found that would lower wholesale gas prices by more than $2 a gigajoule, representing a reduction across NSW, Victoria and Queensland of 17 to 21 per cent. That would represent an increase of about 6% in the 500-petajoule domestic east coast market.
A 20% price drop is a joke. This reduces the spot price to about $11Gj and the wholesale manufacturing price to $15Gj. Neither is economic.
Both approaches have the same problem.
The LNG export cartel will seek to buy up gas producers and acreage so they appear to own the gas rather than taking it from the broader market. They can then juggle the portfolio of gas to ensure the cheapest goes offshore and the most expensive stays in Australia.
The ACCC has proven to be an inept policeman of such consolidation. This is why the LNG export cartel already owns 90% of East Coast reserves.
The situation highlights the fundamental issue with the export permit system: it fails to address the lack of competition.
Whatever reform path is chosen, it must force producers to sell their gas locally at lower prices.
Peter Dutton’s excellent reservation proposal did this by threatening the cartel with export levies if they did not deliver a 20% surplus to local needs.
Albo’s cowards are ignoring this, so the cartel must allow the policy to work. This is either imbecilic or corrupt.
A better approach is to recognise that the market has failed and treat it as the monopoly it is.
The approach involves applying Dutton’s export levies outright.
If the government levies 100% on every export dollar above a $7Gj threshold, the local price will always reflect that amount, regardless of the cartel’s actions. Indeed, it will incentivise making up for lost margin in higher volumes for export and local distribution.
The policy will also collect tens of billions of dollars for the budget.
It also addresses tax inequities.
