A conspiracy to stiff gas consumers ?  

Posted by Big Gav in , , , ,

Michael West has an article in the SMH posing the question "are rising Australian domestic gas prices the result of a conspiracy" - A conspiracy to stiff gas consumers.

Coal prices have crashed, the carbon tax has gone, yet the cost of electricity continues to rise. Oil prices have halved, yet the price of gas, which is linked to oil, is going up 17 per cent.

This used to be a country which thrived on an abundance of low-cost energy. Now virtually every consumer and every business is shackled by spiralling energy prices. ...

About 34,000 homes had their electricity cut off and there were more than 24,000 who had their gas cut off. There is a vicious circle in this, because the fewer people there are on the grid the more the networks charge each customer to recoup their costs.

And charge they do. Even as inflation has ebbed in recent years, and even as actual demand has receded too, the networks have kept pushing regulators for their 10 per cent returns. ...

The gas lobby has been running the line, talking about a "cliff" in gas supply. Unless new coal seam gas projects were urgently bought on the east coast would literally run out of gas. This scare campaign has been the impetus for the dramatic rise in gas prices.

Yet there is no hard evidence for it, because the gas cartel does not reveal even to the government how much there is in the way of gas reserves or what is actually contracted and at what price.

It is no secret though that, despite Australia's enormous reserves, prices have been driven up by the rush to export the stuff to Asia. Local consumers are being forced to pay international prices and the producers have diverted supply to the Gladstone plants to be turned into LNG and shipped offshore.

That, too, is now unravelling. Credit Suisse sallied forth with a report this week which pointed out gas prices had halved, in line with plunging oil, and that the Gladstone LNG projects were in financial disarray.

Personally I'd find it ard to blame rising gas prices on anything other than the linkage of domestic prices to the international export market - as long as Asian prices are higher than domestic prices once were, we'll have to pay out more. The only real solution to this, as a coalition of manufacturers have argued, is reserving a percentage of gas production for the domestic market and regulating the price (then ignoring the howls from the gas producers about missing profit opportunities). In the longer run solar power will make the issue largely irrelevant, other than for industries that need gas as a feedstock.

The SMH had an earlier article talking about the effect of exports on local prices - Local gas prices set to soar as exports to Asia get under way.

In late December, British energy giant BG Group sent the first ever shipment of liquefied natural gas from Australia's east coast, using gas from the state's booming coal seam gas industry. Granted, it sounds far removed from everyday life for most of us. But this cargo load is the start of a trend that will dramatically increase how much households pay for gas used for hot water, cooking, or heating.

It is predicted to push up many households' utility bills by a similar amount to the carbon tax, but there are no plans for compensation. And as you'd expect with a jump in the cost of living of this size, this one is producing some seriously flimsy economics.

First though, back to that shipment. Not only was it the first time that CSG has been converted into LNG, the exportable form of gas. More importantly for consumers, it was the first time gas has been exported from the east coast of Australia at all, and there is much more to come. Origin Energy and Santos this year also hope to start pumping cargo loads full of the stuff, to be sold to buyers across China, Japan, Korea, Malaysia and other Asian nations.

Economists are keeping an eye on these projects – and others in WA – as there are predictions they could make Australia the world's biggest exporter of LNG by 2018, overtaking Qatar. LNG looks set to become our second biggest export behind iron ore. But what will affect households directly is how this massive new industry transforms the domestic gas market.

Now that the east coast is able to export gas (WA has been doing it since 1989) producers have the option of selling to buyers in Asia, who are willing to pay much, much more for it than we have been.

Historically, the east coast gas market was insulated from the rest of the world, and the domestic wholesale price was stable at about $3 to $4 a gigajoule. Now, there are buyers across Asia prepared to pay $12 or $13, even when energy markets are in turmoil as they are at the moment.

ReNew Economy has an article on the dismal future for natural gas fired power generation - Record low solar prices heralds power shift from fossil fuels.

It should be a little ironic – given the dramatic plunge in the oil price that is said to have been driven by Saudi Arabian supply tactics – that a Saudi company should set two global records for cheap solar power in the past two weeks.

But to energy analysts it is yet another sign of the energy transition taking place across the world, and one that could be accelerated, rather than slowed, by the collapse in the oil price because of the cancellation and deferral of tens of billions of dollars in uneconomic fossil fuel reserves.

ACWA Power, a water and power developer based in the Saudi capital Riyadh, last week won the world’s largest ever solar tender with the cheapest ever price for a large scale solar project.

It will build – with the help of Spanish group TSK and technology from US-based First Solar – a 260MWp solar PV plant at the Mohammed Rashid Al Maktoum Solar Park in Dubai, at a cost of just $US0.058/kwh, of $US58.4/MWh.

That’s how much it will receive as a fixed tariff over 25 years for what will be – for the moment – the largest solar plant in Middle East. The price it bid is 20 per cent cheaper than the previous benchmark for solar tenders. What’s more, it is 30 per cent cheaper than the price of gas that is currently used for nearly all of the electricity generation in the United Arab Emirates.

7 comments

Yeah it does look crappy for the moment, but Australia does have a lot of energy plans for the moment, take Sydney with their 100% plan :3 Hopefully the rest will follow soon.

So, should NSW have a reserving policy for households?

Sounds like a reasonable idea.

Perhaps reserve 20% for domestic consumption and regulate the price to be 7% over the cost of production...

So why is there zero interest in this notion, in the state where the problem exists?

In contrast, Andrew Liveris, CEO of Union Carbide, has been extremely vocal about reserving mineral wealth for those that [originally] owned it..

Well - Andrew Liveris just wants cheaper gas for his business, so he's just lobbying for himself.

I think the lack of interest is because on the right, the business lobby that wants cheaper gas (manufacturers) is far less powerful than those who want Australians to pay global market prices (resource companies). Plus it goes against free market ideology. The residual nationalists left don't have much of a voice.

On the left the greens and environmentally conscious parts of the Labor party don't want gas to be exploited at all, so they just ignore the issues...

Hello Big Gav. Is there a reason that complete dates are not given for your blog posts? I don't know if I am commenting on a new thread, or one that is ten years old. On my screen I get dates like, 9 Mar, or 10:15 PM.
Thanks

Mike

Hi Mike,

No reason - I used a template that didn't include the year and never got around to fixing it up.

You can see what year and month it was published in the URL as well so it never rose to the top of my to do list.

At some point I'll refresh the template completely...

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