It’s illustrative of how failure and ineptitude on energy policy have been normalised under the current government that last Thursday’s interim gas inquiry report by the ACCC passed with relatively little media comment or even coverage.
It took Ross Gittins — who of late appears to have lost what little patience he ever had for stupidity and laziness on the part of policymakers — to highlight the issues identified in the report and by ACCC chairman Rod Sims in a speech last week.
It’s almost as if even the business media have given up on expecting basic competence from the government, and can’t be bothered pointing out what damage it is inflicting with its inability to think rationally about energy. Indeed, the extractive industries’ cheerleader at The Australian Financial Review, Matthew Stevens, decided to attack Sims instead.
But the interim report shows that, when it comes to gas, we are right back where we were two years ago: domestic manufacturers are being priced out of the gas market by gas exporters enjoying unfettered access to offshore markets and higher export prices. “When the inquiry commenced in April 2017,” the ACCC notes, “the gas market was dysfunctional. Those domestic gas buyers in the east coast that could get offers for gas supply were receiving offers at prices that were well in excess of export parity prices.”
Despite the intervention by Josh Frydenberg and Malcolm Turnbull back then, we’re back in that place, even if gas prices aren’t spiking above $20 per gigajoule like they were then.
Many C&I [commercial and industrial] gas users have informed the ACCC that at those gas prices, their operations are not sustainable in the medium to longer term. Several C&I gas users recently went into administration, citing rising gas costs as a contributing factor.
The government’s 2017 gas market intervention was notable because of the sheer perversity of it. In 2016 election, the Liberals had assailed Chris Bowen for daring to suggest a national interest test in the gas market — apparently the equivalent of Stalinism for the party of free markets. But post-election, it took the Liberals less than a year to go radically further than Labor and threaten to impose a domestic gas reservation on exporters unless they cut prices.
This worked. The ACCC notes that “as the LNG producers made more gas available into the domestic market, domestic price offers reduced substantially and by 2018 converged with LNG netback prices”.
But it didn’t work enough and not for long — especially if you’re not a big manufacturer and you have to source gas from retailers, not producers:
Prices charged by retailers for gas supply in 2019 have largely been much higher than prices charged by gas producers. Over the past two years, no C&I gas users were able to secure gas for 2019 supply from retailers under $9/GJ. Most C&I gas users had to settle for prices above $10/GJ, with some agreeing to pay over $11/GJ.
As Sims noted in his speech, gas producers are quick to jack prices back up when market conditions favour them, but — who’d have thought! — slow to bring them back down again when the reverse applies.
A number of C&I gas users have told us that some gas suppliers were quick to put the domestic prices up when expectations about export parity prices were increasing last year. These expectations have fallen significantly over the past six months. The 2020 average of expected LNG netback prices at Wallumbilla fell from around $11 per gigajoule in October 2018 to around $9 per gigajoule as at the end of April 2019, where, based on our latest information, it is still sitting. We expect that those same suppliers have revised their prices down this year to reflect these latest expectations as quickly as they escalated them last year.
The recent history of east coast gas markets, however, suggests “expectations” don’t amount to much unless backed by action. What action? Frydenberg was replaced by Angus Taylor (recently caught up in the “watergate” scandal) as energy minister when Turnbull was offed last year. It appears that “non-climate sceptic” Taylor’s famous invisibility has extended beyond public appearances: he’s happy to threaten $100 million fines if electricity companies don’t keep coal-fired power stations going beyond their economic lives, but has gone missing as manufacturing companies start going under again while gas exporters coin it.
“Many other manufacturers are close to making critical decisions on their future operations,” Sims said last week. “If wholesale gas prices do not soften, it is just a matter of time before they follow RemaPak and Claypave.”
Is Taylor doing anything about it? Is anyone at home in the energy portfolio?