As we know, energy ministers have kicked a decision on whether or not to take up Victoria’s insane proposal to publically underwrite LNG imports until July.
To give you some idea of how crazy this idea is, I have made the following chart which compares an average East Coast gas price with LNG imports according to JKM futures as they currently stand using slightly more bearish estimates on the AUD than current futures.
My own view is the AUD will be much lower, which makes the situation much worse.
Imports will start at around $25Gj. The gas export cartel will immediately respond by restricting local supply so that the local price rises to import parity.
The orange line is the accompanying CPI shock in energy with spillovers.
The only scenario in which this does not happen is one in which peace falls upon Ukraine and it resumes gas transit agreements with Russia.
This would drop JKM by 40% so imports end up landing at about the same as the current local price.
This is beyond stupid when we pull gas out of the ground in QLD for $1Gj or less and all reserves are profitable below $7Gj.
An infinitely better idea is this one.
APA Group has unveiled its five-year East Coast Gas Grid (ECGG) expansion plan, which aims to deliver a 24 per cent boost in north-to-south gas capacity.
APA said the plan will increase north-to-south gas transport capacity and deliver new southern markets storage to help make sure lower-cost and lower-emissions domestic gas is available to meet demand on Australia’s east coast.
To be honest, this is gold plating. There is already plenty of idle capacity to pump gas south in the off-season.
The issue is not enough storage capacity in the south to accommodate it for winter as Bass Strait runs dry.
The Victorian and New South Wales governments should be building huge tanks and caverns for winter gas shipped south in summer.
The other issue, of course, is ensuring the gas export cartel offers the gas locally.
That is easily fixed by pulling the lever on the ADGSM.
Given the price calamity, why we would even be considering gas imports is the important question. Let alone VIC doing it when it currently has the cheapest energy on the East Coast but is going to phase out brown coal and catapult its energy prices higher with imported gas.
The only answer is corruption in the system.
My guess is the gas export cartel’s paid shill, the Grattan Institute, has the ear of a fantastically inept VIC energy minister.
