It’s sickening to think Australian governments would put the gas cartel and foreign citizens ahead of lower electricity for Australians. But as Rex Patrick reveals from the latest FOI documents, sadly, that’s what they have done.
In October 2022, nine months after Russia invaded Ukraine, then West Australian Premier Mark McGowan gave some unsolicited advice to the federal government on how to deal with surging gas and electricity prices. They should look to his state to find a solution, he told the ABC’s 730 Report.
McGowan was primarily referring to the gas reservation policy that’s been in place in WA since 2006, whereby gas producers are forced to reserve 15% of the gas they produce for use in WA.
“I think there’s a pretty good model here in Western Australia,” Mr McGowan said.
“Industry didn’t like it at the time but now, it’s seen as a wonderful initiative and, across the board, it’s accepted by industry — both the oil and gas industry itself, but also other industries that are downstream users of it, particularly down here in Perth”.
High gas prices and the ADGSM
Gas sets the electricity price. So, a high gas price doesn’t just hurt industry, it affects every Australian household.
On the East Coast, it is supply availability that sets the price. This can be seen in the picture below, which paints a thousand words. In the early part of last decade, the East Coast gas prices (purple) were on par with the west (blue) and the US (yellow) – below $5/GJ.
Figure 1 – Domestic WA, East Coast and International Gas Average Quarterly Spot Prices 2013 to 2021
In 2015, as the gas cartel turned on the export gas trains in Gladstone, Queensland, the price started to rise. The prices on East Coast started to rise, peaking as export production rose to full capacity, in 2017 at $10/GJ (long term contract prices were up around $18/GJ).
That’s about the time that I, as an advisor to Senator Nick Xenophon, negotiated the Australian Domestic Gas Security Mechanism (ADGSM) with the Finance Minister, Senator Matthias Cormann.
At the time the cartel were refusing to offer gas to some Australian businesses, no matter the prices they were willing to pay. The gas companies were determined to get gas offshore to their long-term foreign customers, and Australian consumers weren’t a priority.
The ADGSM allows the Resources Minister to stop gas exports if there is a projected shortfall in the East Coast market – in effect, it’s an emergency gas reservation policy.
After the introduction of the ADGSM, supply availability improved, but the cartel kept prices high by keeping a tight rein on supply.
Through all of this period the WA price remained below $5/GJ.
Asian gas absurdity
In early 2019, the price of East Coast gas rose above that of Australian gas in Asia. That was an incredible situation, given that gas exported to Asia needs to be liquified and shipped.
In May 2019, the Morrison Government was re-elected, and I found myself, as an independent senator for South Australia, in a strong ‘balance of power situation’ in the Senate.
I used that position to jump on a plane to WA to have a serious discussion with Cormann about the gas situation. We were joined by Resource Minister Senator Matt Canavan.
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We talked through ways to deal with the problem. Cormann and Canavan agreed to conduct an early review into the operation of the ADGSM, with a view to factoring price (rather than just supply) into the mechanism. Cormann also agreed to explore an East Coast gas reservation policy.
Cormann close, but no cigar
On 6 August 2019, the Morrison Government announced it would look into a gas reservation policy for the East Coast.
By October 2020, the Department of Industry, Science and Resources had prepared an issues paper and was calling for submissions from stakeholders. Over 40 submissions were received.
In October 2021, the Department completed its analysis, finalised an options paper, and advised then Resources Minister Kieth Pitt to recommend to the Prime Minister that a gas reservation scheme not be supported.
The Department’s options and analysis were secret and they have spent the last two years, and a great deal of taxpayers’ dollars shelled out to lawyers, to make sure the options paper did not see the light of day.
They were only partially successful in that objective.
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Condemned by their own words
The documents the Administrative Appeal Tribunal eventually ordered the Department to hand over reveal a trail of bureaucratic deceit and betrayal.
First, it is revealed that the Department acknowledged in the options paper that a domestic gas reservation policy was “a way to push to producers towards offering longer term, lower cost supply contracts.
Secret Unveiled (Source: FOI)
But they also observed that gas producers and exporters would not favour such a proposal. And they then proceeded to swallow the arguments of the gas cartel.
One of the fears the Department had was that a reservation policy would ultimately cause a lack of investment in gas exploration. Of course, the WA reservation scheme revealed that this was cartel ‘smoke and mirrors’ misinformation.
In the WA case, investment had gone up, not down.
Nothing to see in WA! Look at Peru!
Part of the argument created to support the cartel’s ongoing profits was a case study from Peru.
Although the options paper looked at gas reservation schemes from Indonesia, Israel, Malaysia, Qatar and the US, the Department was clearly heavily influenced by the views of the Australian Petroleum Production and Exploration Association (APPEA), an association that represents over 200 oil and gas explorers and producers. They proposed that Peru was the only LNG exporter with a domestic gas reservation scheme. The Department swallowed that hook sufficiently to endorse the idea in the paper.
Of course, the impression created by APPEA was one of doom and gloom in Peru. Even if they were right, the Department failed to appreciate that, unlike the 15% reservation commanded by WA and the 10% reservation likely to be used on the East Coast, Peru used 40%.
APPEA’s Doom and Gloom Presentation (Source: FOI)
Of course, the Department just had to look to WA to see that, almost two decades after initiating a gas reservation policy, they still have consistently cheap gas.
Gas lobby fable upon fable
Offensively, almost as though they had not read their professional duties set out in the Public Service Act, the bureaucrats also advised the minister that, “Gas reservation acts as a tax on gas production, paid as a subsidy to domestic gas users”, as though their first priority wasn’t Australians.
A Price Subsidy for Australians (Source: FOI)
Further argument against a reservation scheme was that price decreases would ultimately increase demand, and the price would eventually go up. Imagine that – growth in manufacturing! The Department saw that as a disadvantage.
Most significantly, the Department’s options paper argued against a domestic gas reservation policy on the grounds it would create energy security uncertainty for our trading partners (such as Japan, who have recently been caught out re-selling our gas – profiting at the expense of cheap electricity here in Australia).
Of course, putting Japan, South Korea and Japan ahead of Australians is also happening and has been explored extensively by MWM.
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Australia Betrayed
We don’t know the full options for reducing gas and electricity prices. They have been kept secret because they might upset our international gas customers.
Figure 2 – Gas Reservation Options Kept Secret (Source: FOI)
What we know is that the Department did go along with the cartel. They recommended against a gas reservation policy.
DISR’s Recommendation (Source: FOI)
They are wrong and Australians are suffering for their betrayal.
Sadly, the Department (now DCCEEW) is firmly in the pockets of the cartel and foreign interests.
How far entrenched in their pockets they are was revealed when they had a dig at the Australian Energy Market Operator suggesting that they had no role in forecasting gas supply to ensure Australians have energy; it’s only about investment.
AEMO Should Stick to Helping the Cartel? (Source: FOI)
Unfortunately, it’s the Department that serves as the foundation of advice to our political leaders – no matter which party is in government. With transparency strongly suppressed, the Department’s bias for the cartel when advising ministers, compromised by donations no matter their party, goes unchecked.
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A deliberate choice
The key point to understand here is that Australian Government bureaucrats and Ministers in the Morrison and Albanese Governments have very deliberately decided that the interests of the gas cartel and their foreign customers, mainly big energy corporations in Japan and South Korea, sit ahead of Australian consumers.
Cormann and Canavan were prepared to look at options, but their Prime Minister and the Coalition Government decided to put foreign interests first. They did so because they were in the thrall of the gas cartel and feared a corporate and diplomatic backlash.
And that decision has been carried on by the Albanese Government, with the Prime Minister and Resources Minister Madeleine King bending over backwards to reassure Japanese and Korean Governments and corporate interests that Australia won’t give any thought to limiting gas exports.
Time and time again, Albanese and King have repeated the mantra to the gas lobby, as well as audiences in Tokyo and Seoul, that Australia will always be “a reliable energy partner” – which is code for, “don’t worry, we’re going to put foreign interests first”.
This is a deliberate policy and political choice that has been made and maintained by both the Coalition and Labor Governments. They’ve wanted to keep the nature of that choice hidden for so long, obstructing the release of information, but at least some of the truth is now out in the light of day.
Premier McGowan had it right when he said,
Obviously, producers of gas in the east wouldn’t like [a gas reservation scheme], but Australian national interest and the people of Australia must come first.
Unfortunately, no one in Canberra wants to listen to that sort of statement.
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Rex Patrick is a former Senator for South Australia and earlier a submariner in the armed forces. Best known as an anti-corruption and transparency crusader - www.transparencywarrior.com.au.