Albo’s ministers and premiers are running around like headless chooks:
After being asked about the Victorian Premier’s call for an east coast reservation scheme, South Australia’s Labor Energy Minister, Tom Koutsantonis, said it was “interesting to see reservation policies being advocated by governments that don’t allow gas developments to proceed”.
Australian Petroleum Production and Exploration Association chief executive Samantha McCulloch said there had been “no gas coming out of the ground in onshore Victoria for many years due to moratoriums and bans that have stifled investment in new supply that would put downward pressure on prices”.
“These same bans mean that Victorian households and businesses pay at least an extra $2 per gigajoule when they need to transport gas from Queensland,” Ms McCulloch said.
Can you believe the chutzpah of this woman? Her Evil Cartel has recently charged Australians up to $65Gj on $5Gj breakevens but Victorians should be upset about $2Gj piping it from QLD?
Talk about an elephant in the room.
The forgotten truth in this is that VIC is a massive gas producer, much larger than SA, and very often is exporting the stuff to other states from Bass Strait:
I will add that the Evil Gas Cartel has, at times, also siphoned off VIC gas to Asia.
Whether VIC should develop unknown onshore gas deposits is a question for the community and it has decisively answered “no”.
Some of this is NIMBYism. But a lot of it is the appalling behaviour of the Evil Gas Cartel itself. Why would the community trust it to extract unconventional gas that comes with water table risks?
If it were up to me I would form a National Gas Company, expropriate the assets, and develop the gas in a heavily regulated, cost-plus public company that breaks the Evil Cartel’s stranglehold on prices.
Australia’s corrupt Resouces Minister, Mad King, re-emerged to again put her heft in the way of sense:
Federal Resources Minister Madeleine King said it was difficult to replicate the West Australian reservation scheme across the east coast, where a lot of the gas is contracted and coming out of Queensland. “It is very difficult to retrospectively put in a reservation policy after you have had investment go in,” Ms King said.
“And this is tens upon tens of billions of dollars (of investment). So the risk is around breaching international investment rules and World Trade Organisation rules. Although we respect and totally support Western Australia’s reservation policy, retrospectively putting one across eastern Australia is very complex and problematic.”
No, it isn’t. It just takes balls. The WTO can go to buggery. Declare a national emergency and force majeure if need be. Does Labor not understand that it is running a sovereign state?
At least coal is entering the debate:
Credit Suisse’s Saul Kavonic says many of the unintended consequences of intervention warned about years ago are now coming to fruition. “Federal and state governments have made a mess of the power market over the last decade, and are now looking to make a mess of the gas market,” he says.
…According to Credit Suisse’s Kavonic, a $10 cap could see gas demand in the sector spike, causing structural shortages for manufacturing, and destroy incentives to invest that only leads to a bigger gas problem down the road.
The next risk is that existing LNG players only export to their contracts and produce not a molecule more. That could force the market operator to direct a shutdown of a big user like aluminium.
Moreover, at $10 per megajoule, coal is also priced out of the market. Why? Because Origin Energy’s huge Eraring coal-fired power station in NSW does not have long-term coal supply contracts. It has to buy on market.
OK, so some of this is real and some isn’t. Why would the Evil Cartel stop producing and selling gas at $10Gj when the breakeven on it is $5Gj? And this is an all-in cost. Cash-cost is probably more like $1Gj. The sunk cost is irrelevant now that the facilities are built, despite ongoing drilling.
Gas prices have been much lower than $10Gj in recent years and the flows kept coming. A $10Gj fixed price is more likely to trigger greater volumes with margins at a regulated 100%!
As for a manufacturing boom in Australia? That’s really going the raw prawn.
But, the point on coal is vital. It must be included in any energy measures:
But Australian Industry Group energy analyst Tennant Reed said cheaper gas would not deliver significant cuts to power bills.
“Unless coal prices also fall, lower gas prices would provide only mild relief from the extreme wholesale electricity prices facing eastern Australia over the next few years,” Reed said.
“Black coal still accounts for most electricity produced in NSW and Queensland and for both physical and financial reasons, those plants prefer to operate as close to constantly as they can.
“So high fuel costs for gas peakers [quick-start gas plants] are expected to have an important impact on electricity prices, but only part of the time, while coal prices will have a much more frequent impact.”
Power prices will fall more than that with gas at $10Gj. They already have as gas has come down in price while coal has not. But still not enough, especially in NSW and QLD:
Finally, there is this lunacy:
Origin’s electricity sales volumes rose 8 per cent from the September quarter of 2021, While retail volumes slid 2 per cent as more customers got their power from rooftop solar panels, the volume of electricity sold to business customers surged 18 per cent as the company won new customer accounts.
In domestic gas, sales volumes to business customers surged 23 per cent, gain on new customer wins and increased short-term sales, while retail gas sales were mostly flat.
The average price Origin got for gas sold by APLNG edged up 5 per cent in the quarter to $17.21 a gigajoule, and was 71 per cent higher than a year earlier.
ORG has 2.3MWs of peaking gas power generation which, as a member of the Evil Cartel, it powers with its gas assets. But it also has the gigantic Eraring Power Station in the Hunter that sits right on top of oodles of black coal deposits that it does not possess.
As result, ORG can’t get enough coal. Or, couldn’t during winter because too much of it is exported as well. It is literally at risk of having to take coal to Newcastle:
In short, what the Evil Gas Cartel is giving ORG, Big Coal is taking away.
There is no better example of the lunacy of east coast energy markets. Huge monopoly interests are gouging each other and everybody else as they fight to the death over Ukraine war profit windfalls.
It’s a living, breathing market failure demanding intervention. And with leadership, that is remarkably easy.
Contrary to all of the pearl-grabbing and rhetoric, all Chicken Chalmers needs to do is apply an export levy benchmarked to pre-Ukraine War prices of $100 for coal and $7 for gas. Local prices for both fuels will collapse to those prices, the Treasury will collect scores of billions in windfall profits for the resource owners (you), and there will be NO THREAT to export contract volumes.
Fair dinkum, mate, grow a pair:
More than two-thirds of voters have backed the government intervening in the energy market to curb soaring power prices, after the Albanese government’s first budget did little to ease widespread cost-of-living concerns.
The latest Guardian Essential poll of 1,038 people, taken after Jim Chalmers’ first budget, found pessimism about the economic outlook, with more than half of those surveyed (61%) bracing for the economy to worsen in the next 12 months. This was a 13% increase since June.
