Trigger shy: dithering on the obvious fix for gas and electricity bills costs every Australian

The simple solution to the gas crisis and rising energy bills is being ignored. In WA they earmark a portion of gas supply for domestic users. This Domestic Reservation Policy works. Prices are lower, supply guaranteed. So why is the government refusing to do the same for all Australians? Rex Patrick reports.

Already suffering Australian household and businesses will suffer even more over the next two years with 56% increase in power bills predicted. It will drive up the cost of living further, increase inflation by around 1% – which will contribute to higher interest rates – and will cause manufacturers, particularly those with energy intense operations, to shred jobs or go out of business.

And yet the government seems to have little appetite to address the problem. It’s a case of … let the suffering continue. And for every extra day of suffering, the gas companies smile quietly while racking up more super profits.

Gas prices set electricity prices. Gas powers the gas turbines that turn on (at high per unit prices) to boost power when there are wind and solar troughs, or demand spikes. 

And yet there’s no shortage of gas in Australia and no need for Aussies to be paying high prices for it.

Cause of the suffering

Next year Australia will produce about 1980 petajoules of gas, of which only 570 petajoules will be used domestically. We have plenty of gas. The high cost of gas is the result of government policy failure and the unrestrained greed of the gas cartels, not any lack of supply.

Readers can see where the problem lies. Between 2014 and 2017 three LNG projects operating on Curtis Island near Gladstone kick off east coast LNG exports.

• Queensland Curtis LNG (QCLNG) – A Shell managed plant that is owned by Shell (Europe) and CHOOC (China). It commenced operations in 2014.
• GLNG – A Santos managed plant that is owned by Santos (Australia) and Total (Europe) and Petronas (Malaysia). It commenced operations in 2015.
• Australia Pacific LNG (APLNG) – A ConocoPhillips managed plant that is owned by ConocoPhillips (US), Origin Energy (Australia) and Sinopec (China). It commenced operations in 2016.

Prior to the development of these export terminals Australia had relatively low gas prices by international standards, reflecting the local supply and demand circumstances which were characterised by relatively low consumption and high reserves. In 2005-06 prices in Australia were generally less than $4 per gigajoule while in the US and Europe they were around $10.

However, warning signs were emerging in Western Australia, which was and still is a separate market to the east coast, with their LNG exports starting to put pressure on domestic prices. The West Australian government responded with a Gas Reservation Policy.

Promises, promises

Before the end of 2008, three applications had been lodged to establish LNG plants in Gladstone. The three proponents adopted a narrative that ‘all would be well’. Only benefits would flow.

Shell stated that its QCLNG project rationale was:

“to further develop Queensland’s vast CSG resources by opening up new markets for this gas through conversion to LNG and export to international markets, whilst enhancing and creating new supply options to domestic markets”.

Santos stated that its GLNG project:

“will provide assurance of gas supply to international and domestic market “.

ConocoPhillips and Origin stated that the primary objective of the APLNG project:

“Is to further develop Queensland’s vast CSG resources by opening up new markets for this gas through conversion to LNG and export to international markets, whilst enhancing and creating new supply options to domestic markets.”

The reality

Moving forward almost a decade to 2017, with the export facilities all up and running, supply shortages and significantly prices hikes were being experienced in the east coast gas market. The output from the fields intended to support the gas companies export contracts were not meeting expectation, and so the companies scooped up local supply to meet their needs.

They put their export customers ahead of domestic users and the nation. The government intervened with a gas trigger regulation to ensure supply could satisfy local demand.

As you sip your Sunday morning coffee and contemplate a 56% increase in energy prices over the next 2 years, and its +1% inflationary effect, you might also like to consider how much income tax one of the three East Coast LNG export terminal operators doesn’t pay. 1/2 #auspol pic.twitter.com/4D6kODDHR6

— Rex Patrick (@MrRexPatrick) October 29, 2022

Trigger shy

But that didn’t adjust the mindset of the companies who, thanks to effective political lobbying and leverage, were confident the government would never pull the trigger. They clearly cast aside their national benefit façade in favour of profit. By 2019 Australian consumers and businesses were paying more for Australian-sourced gas than their Asian counterparts, even after liquification and shipping. There was no rational defence for their conduct.

Three years later these companies are still laughing all the way to bank. The Germans would use the word ‘schadenfreude’. Now the gas predators are taking full advantage of the misfortune of Ukrainians to maximise their profits. 

Without regard to the pretences under which they established their LNG operations here, they’re taking gas that belongs to Australians and selling it at super profits, both here and abroad, crippling Australian consumers and business.

Companies need to make profits. We shouldn’t mind too much if they make super profits from overseas customers, provided they pay a fair royalty to the people who actually own the resource. But they cannot be permitted to steal away our comparative advantage.

And yet our government stands still like a kangaroo caught in the headlights. Sure, they’re talking about minor measures, but they’re not doing the big things they need to do, like enacting a gas reservation policy. The government seems to place (non-existent) sovereign risk ahead of local poverty and loss of manufacturing.

Gas: how Australia privatised the profits and socialised the losses

 

No sovereign risk, just national harm

There is no sovereign risk. Companies that advance a benefit to a host nation as they establish an operation and then don’t come through must anticipate that a government must respond accordingly. Companies that operate in a moral vacuum and without social licence must expect a switch by government away from its ‘good faith’ norms.

The Albanese government has been in power for almost six months. In that time, they’ve done little to deal with this crisis. Even yesterday, on the ABC’s Insiders, the Treasurer procrastinated, refusing to advise when some substantial action might be taken.

The moderate national secretary of the Australian Workers Union, Daniel Walton, is right in telling the government to stop dithering and to act.

Perhaps the Labor leadership can look to their WA colleague who went on ABC’s 7.30 Report last week and explained how a reservation policy has served his state well.

“Because of it WA has reliable electricity, affordable gas, a reliable supply, and none of the chaos we’re seeing in the eastern states,” he said.

 

Gas crisis really a transparency crisis, says architect of the “Trigger” Rex Patrick

 

The policy was quite controversial when first rolled out.

“There was much gnashing of teeth, threats to sovereign risks, or threats [that] there won’t be any further investment,” the colleague 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.”

He then went on to point out something our federal leaders don’t seem to have grasped. 

“Obviously, producers of gas in the east wouldn’t like [a reservation policy], but Australian national interest and the people of Australia must come first”.

That’s how it should be. Prime Minister Albanese needs to get that into his head and take action accordingly.  

The Reverse Bradbury: your electricity bill and the ACCC’s gas report