Bartho took up the cause of the LNG giants yesterday: Shell Australia’s new chair, Zoe Yujnovich, has injected what for some will be an uncomfortable dose of reality into what has been a generally misleading debate about the role that the three big Queensland export LNG plants have played in the east coast energy crisis.
Australian LNG has a long history of pioneering investment. From the North West shelf to the first floating LNG project ever constructed.
Like other Australian commodities this history aligns with that of development economics of Asia. The first wave of Australian LNG development grew to service a modernising Japan and its demand for energy. This bilateral relationship has a long history of cordial relations, share-equity investment and oil-linked contract pricing to satisfy both parties.
The second wave of Australian LNG was far more chaotic, matching the staggeringly swift rise of the much larger Chinese economy. It began along with the pre-GFC oil boom and Malthusian assumption that the world was going to fall short of everything as the enormous Chinese and then Indian middle classes ballooned and consumed more energy per capita.
Multitudinous LNG projects were sanctioned in Australia which found itself by 2010 developing no fewer than seven LNG project simultaneously. Needless to say this did not end well with gigantic cost blowouts for all as they competed for labour and other resources.
Yet, as the commodity super cycle peaked in 2011, demand suddenly fell well short of expectations and kept doing so over the next four years. Making matters worse, the US shale revolution suddenly turned that nation from net LNG importer to net exporter of a magnitude equal to Australian LNG. The global glut from 2015 was enormous.
The Australian LNG boom included a particularly cavalier offshoot in QLD where coal seam gas was liquefied via three projects on Curtis Island. As the boom subsided, and oil-linked prices crashed, the companies involved were all either sold or destroyed.
The legacy left by the projects was one of very high Australian gas prices with very low Asian gas prices, also delivering an huge blow to the competitiveness of the east coast economy. Thus the $200bn investment proved to be the greatest single capital mis-allocation in the history of the Australian economy (and surely global energy markets) and was little more than a monument to Banana Republic economics as tax takes failed, income fell and hollowing out transpired on raised local costs.
MacroBusiness was the only analytic house to call the Australian LNG bubble early, track it and predict its demise. It continues to cover the LNG sector with daily updates and a large grain skepticism and is a must read for anyone that needs to know the economic forces coming to bear on the sector.
Via Matthew Stevens today: The federal government might question Andy Vesey’s standing as a good corporate citizen, but a commercial nation facing further gas supply and price shocks from 2019 might well urge those working to craft a functioning energy policy to take stock of the savvy energy trader’s plans. Vesey’s thought crime, of course,
The gas cartel straight up lied to your face yesterday at the AFR: Santos’ head of strategy Angus Jaffray told the summit that were it not for the LNG projects in Queensland, the gas market on the east coast would be tighter rather than looser. Mr Jaffray said the domestic market couldn’t have supported the
Apparently not. It’s all the way with another crazy carbon election, via the AFR: Australia risks more energy policy paralysis and another election fought on climate change after the government signalled it was stepping away from a clean energy target, setting the scene for a new fight with Labor. Energy chiefs at The Australian Financial
Bill Shorten has also spoken on energy today at the AFR Summit: Mr Shorten said Labor would also introduce a national interest test for all new LNG facilities to “guard against a repeat of the current crisis”. He said Labor also supported the “responsible” development of onshore gas although fracking was largely a state issue.
Farewell CET: Energy Minister Josh Frydenberg has all but ruled out a clean energy target, saying the transition to lower greenhouse gas emissions cannot come at the expense of the reliability and affordability of our electricity system. Mr Frydenberg told the National Energy Summit in Sydney that emissions in the electricity sector had fallen over
Judith Sloan lost it on energy over the weekend: Move over, Ponzi; forget Bernie Madoff; ignore Enron; and dismiss collateralised debt obligations associated with subprime mortgages. Without a doubt, the biggest scam perpetrated against taxpayers and consumers is renewable energy. And if you think this scam is just an Australian phenomenon, think again. With very few
It’s taken five years but the great gas smash has finally begun. The media is full of frenzied options and commentary today on how to fix it. A magnificent stoush is underway between Do-nothing Malcolm and Alan Jones: Malcolm Turnbull and his government are headed for a showdown with highly influential broadcaster Alan Jones amid
Cross-posted from Australia Institute: Australia has plenty of cheap gas. The problem is private companies are selling it all overseas, writes principal adviser at The Australia Institute Mark Ogge. Hard to believe, isn’t it? But it’s true: in the last decade, tens of thousands of square kilometers of Queensland farmland has been covered in gas fields.
Via the AFR: While the federal government has threatened to use the GST formula to punish states that ban coal-seam gas, the body that administers the GST has already concluded the threat is not very scary. The Commonwealth Grants Commission considered the idea of using the GST to punish states for blocking coal seam gas
Via the AFR: …prices could be higher based on the spot Asian LNG price for the first quarter next year, translating to at least $11 a gigajoule for a large manufacturer in Victoria, and even more for a smaller one, said Mark Samter, energy analyst at Credit Suisse. The analysts are among energy market watchers that
From the AFR today: Even now that Canberra has backed away from triggering the export controls, Tuesday’s deal is seen having a similar effect as Queensland’s exports of gas will be essentially limited to long-term contracts. Gas and petroleum exploration and the production, treatment and marketing of natural gas, crude oil, condensate, naphtha and liquid
Australian gas customers are moving in for the kill: The recent renegotiation of the Gorgon contract between India’s Petronet LNG (PLL) and Mobil Australia Resource Company is bound to open more doors for similar deals, credit rating agency ICRA said. It said that akin to PLL, Gail is also is trying to renegotiate such contracts
Today from the AFR: International chemical industry investors have warned the gas supply deal does not address the soaring prices that are putting tens of thousands of jobs at risk and are calling for a national energy policy that would help open up onshore gas in Victoria and NSW. Senior executives at ChemChina, owner of
Via the ABC: In the end bloodshed was avoided. The Federal Government put its large calibre export control weapon back in the holster. The gas producers agreed to hand over sufficient supplies to cover a 54-petajoule shortfall regulators identified in the eastern state gas market next year and there were huge sighs of relief all
Via The New Daily: Australia’s gas producers are pushing the government to guarantee the purchase of gas in the domestic market, in a proposal that could cost taxpayers tens of millions of dollars. On Wednesday, Prime Minister Malcolm Turnbull revealed he had cut a deal with Australia’s three biggest gas producers – Origin, Santos and Shell – that would solve
Via the AFR: The commitments made by the three LNG exporters that they will make enough gas available to fill the shortfall identified for 2018 are clearly welcome: Government, gas producers and buyers all agree. But the producers will still be demanding a price that makes commercial sense. And they have privately made it clear
Via the AFR: The Turnbull government has relaxed its threat to place curbs on LNG exports after the gas giants assured Prime Minister Malcolm Turnbull and his senior minsters they would provide enough fuel to fill the looming domestic shortfall for the next two years at least. The meeting, the second this week, came after separate reports
Via the AFR: The heads of the Queensland LNG ventures headed up by Origin Energy, Shell and Santos have been summoned to meet again with Mr Turnbull in Sydney on Wednesday morning, when they are expected to come under pressure to commit to only shipping gas that is covered under long-term sales contracts. That should
Via the FT: Brent crude oil rose above $58 a barrel on Monday to its highest in more than two years, lifted by fast-growing demand and a threat to Iraqi Kurdistan’s crude exports as the autonomous region holds a referendum on independence. BP’s top oil trader in Asia said the crude market had turned a
After completing stuffing its regulatory response to the gas market for several years, by resisting reservation and allowing reserves to consolidate in a blood-thirsty cartel, the ACCC seems finally to be getting ahead of things: The national competition watchdog has taken the extraordinary step of releasing “appropriate benchmark prices” for natural gas on the east coast,
Via Domainfax: The Turnbull government has given the east coast gas giants one last chance to free up enough fuel for the domestic market or be hit with export controls, after two new reports showed the predicted shortfall to be three times worse than originally thought. And the government will redouble efforts to convince NSW, Victoria and the Northern
Via the AFR: The Turnbull government is set to pull the trigger on limiting gas exports within days following the latest report from the Australian Energy Market Operator warning there is a significant risk of a gas shortfall in the eastern states over the next two years – and it could get worse. With Prime
The AFR thinks so: If factories fall silent in eastern Australia because they are short of gas, then the Coalition will likely follow them out the door at the next election. That’s the only plausible reason why a Liberal-led government is now doing the illiberal things that it is. ACCC chairman Rod Sims this week
Morgan Stanley thinks so: Product markets are showing signs of outright tightness, particularly middle distillates. This is feeding into crude markets which are looking more balanced in 2018. We are raising oil price forecasts modestly. The real winners though are refiners, and we see value in margins and crack spreads. Strong demand is driving product
Via the AFR: Malcolm Turnbull has indicated the government will pull the trigger to enforce limits on east coast gas exports and try to direct more to domestic supply, prompting howls of protest from the LNG giants and warnings about sovereign risk. A day after Australian Competition and Consumer Commission chairman Rod Sims warned the government
Via the AFR: The managing director of Australia’s biggest brick making company says if a company was ever run as badly as Australia has been in the past 10 years by its politicians, the entire board would step down. Lindsay Partridge was fuming on Thursday as he revealed that Brickworks manufacturing plants were facing a