Think tank, I think not. Gas cartel-sponsored #$%@& is more like it:
The most controversial element of the proposal is a requirement that gas contracts are struck at prices that reflect production costs plus a margin allowing for a “reasonable” rate of return – a change that gas producers have slammed as a major intervention that ignores their exploration and development risks and will imperil the availability and affordability of gas for Australian consumers.
In its formal submission to Treasury on Wednesday, the oil and gas industry said the proposed code of conduct would deter investment in new gas fields at a “critical time”, just as the competition watchdog warns more supply is needed as soon as this year to avoid shortfalls later this decade and prevent further price spikes.
“These are the worst possible reforms at the worst possible time,” said Samantha McCulloch, of the Australian Petroleum Production and Exploration Association (APPEA).
“These interventions will reduce investment and ultimately increase the risk of gas shortages and further price increases.”
…The Grattan Institute, a prominent policy think tank, said the introduction of a $12-a-gigajoule temporary price cap was “probably the best next step” that had been available to the government among some “hard alternatives”. However, it described the reasonable pricing provision as a “dramatic move, with very difficult challenges and no obvious pathway back to a workable market”.
“Determining risk premiums for gas exploration and development and assessing the economic life of new developments when there is so much uncertainty about climate policies are issues normally left to investors and their financiers to determine and markets to price,” Grattan’s submissions said.
Now, look, that would be all fine and good if there was a market before the price caps. But there was not. This was amply demonstrated last winter when the gas cartel started selling gas produced at $1Gj for $60Gj to the locals.
I ask you, is that a price determined by “risk premiums for gas exploration and development and assessing the economic life of new developments”?
If you think so then I suggest a defibrillator immediately.
The starting point for all policy remedies at this juncture has to be a simple truth that the Australian gas “market” has failed. There is NO “market”. There has not been one since the LNG export cartels opened their facilities in 2014, helped along by the Grattan gas-#$%@& which argued domestically reserving gas would be stupid:
Well, it was wrong. And now, the only answer, as it has been since 2014, is some form of retrospective reservation. That is what a “reasonable rate of return” provision is. That’s what the 2017 ADGSM was. That’s what the price caps are.
If the gas villains do not want to make a reasonable rate of return then take the leases off them with use it or lose it laws and sell them off to other producers that will develop for a reasonable rate of return. Believe me, they exist.
Even better, start a National Gas Champion to develop the reserves at a reasonable rate of return which will act as a permanent price benchmark for the remaining cartel members. Voila, problem solved!
All of these things are eminently possible. They just take will and political capital, which the Origin (gas cartel) sponsored Grattan gas-#$%@& keeps eating away.
