How the gas cartel is holding the nation to ransom

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Living in a gas rich nation at a time of a global supply glut should mean that the Australian consumer would have a plethora of choices for cheap supply. Not so.

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Gas-ring-006

Last week, Andrew Smith, Chairman of Shell Australia, suggested that NSW and Victoria may have to consider importing LNG from Queensland or Papua New Guinea if the states don’t act to get onshore gas out of the ground, took the ‘East Coast gas shortage’ argument to new heights of hysteria.

But as the Australian Electricity Market Operator has clearly stated, the demand for gas on the east coast of Australia has fallen and there is no gas shortage.

In fact, the global gas market is entering a large glut in supply – a glut that according to the Office of the Chief Economist will extend out to 2030.

The situation is somewhat worse for the Australian gas industry than even the gloomy official forecast, as growth in the key North Asian markets is faltering.  In 2015 LNG demand from Australia’s key markets Japan, Korea and China contracted by 1.7% (-3MT).

The official forecasts out of Japan, our largest export market, and Korea, our third largest export market, are for those markets to continue contracting out to 2030.

What’s more, large global surpluses are being exacerbated by major increases in supply in the next four years.

Back in Australia, on the 9 April 2015, AGL Energy, one of the largest gas retailers, secured long-term supply gas supply agreements with BHP and Esso’s Bass Strait operations to get gas for its 1.5 million small business and residential customers out to 2020.

Rather than facing a shortage, AGL ended up with a surplus of gas that it has since on sold into the gas export market.

So what is going on? Living in a gas rich nation at a time of a global supply glut one would have thought in Australia, the domestic consumer would have a plethora of choices for cheap supply.

Not so, because what is effectively a cartel of gas producers is ensuring that domestic gas supply in Australia is rationed and prices kept well above comparable gas prices in offshore markets.

Currently, even our own export markets have cheaper gas available to them than we do in Australia.

The Shell Chairman’s suggestion we should construct a LNG facility in Sydney to import LNG is undoubtedly economic insanity. Any analyst with an iota of common sense could tell you the gas he wishes to ship into Sydney – when we have ample supply from the Bass Strait – would be prohibitively expensive.

But there is method in the madness.

It is a strategic move to try to further leverage up the domestic price to above the level being paid by our export customers.

The industry is doing so in order to get our domestic gas consuming industries to pay for the expensive and energy intensive LNG process that they do not utilise.

Sadly, it’s a ruse which our political class has fallen for hook line and sinker.

Bruce Robertson is an analyst for the Institute for Energy Economics and Financial Analysis. He has been an investment analyst, fund manager and professional investor in Australia for over 32 years. He has worked for major domestic and international institutions including Perpetual Trustees, UBS, Nippon Life Insurance and BT.

 

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19 Comments
  1. DevMac 3 years ago

    More incentive for people to switch off gas and onto electricity, for which it makes economic sense to go solar.

    • Barri Mundee 3 years ago

      I recently installed induction cooking when our gas hob was no longer repairable. The cost of the induction cooktop was more expensive than a replacement gas cooktop but having solar and increasing cost of gas make this an attractive proposition.

      We still have gas ducted heating and gas storage water heating which will be replaced with reverse cycle AC and either evacuated tube water heating or heat pump when each gets to the ends of its life.

  2. lin 3 years ago

    Hopefully they are creating their own version of the death spiral, and an ever increasing number of people move to renewable electricity. The greedy arseholes deserve nothing less. If only we could get the government out of their pocket….

  3. Tim Forcey 3 years ago

    In Melbourne, AGL increased daily supply charges (fixed charges) by 25% at the beginning of this year (2016). Up 75% over 5 years. Now nearing almost $1/day. Are they chasing people off the gas grid?

  4. MaxG 3 years ago

    Have not and will not touch gas, and am heavily advocating against it.
    Why I am on a mission to reduce my subscription (bills) over all. Only pay land tax, car and trailer rego and insurance, Internet and mobile phone; self-reliant with water, sewer, and electricity! Gotta love it 😀

  5. Mark Roberts 3 years ago

    I disconnected my Natural Gas (I live in Melbourne) last September and switched totally to Electric for heating/cooling and hot water. It was a great decision and only gets better.

  6. Mark Roest 3 years ago

    A guy in Palo Alto went all electric, was all worried about cooking after being used to gas, but now raves about how great his inductive heating cooktop (range) is. People I know in 350.org say that electric heat pumps are far more efficient than gas heaters.
    Keep it in the ground! Tell Shell to shove off!

    • Tim Forcey 3 years ago

      Australian (Victoria) heat pump space heating economics here: http://www.ata.org.au/wp-content/uploads/2014/11/20151222-Vic-Preso.pdf

    • Phil 3 years ago

      Yes i have found same since going 100% off grid for not only electricity but every service except telecommunications.

      Induction cooktops are as good as gas for control and power. You can even get wok shaped ones now too.

      Heat pumps are simply amazing as that’s all they do , move heat around that already exists in nature , rather than create it from nothing.

      When i explain to many people how heat pumps are 4-6 times more efficient than electric resistance element heating options they claim it’s all rubbish and that if that were the case perpetual motion machines would power the world

      Many dont “get it” and probably never will. It’s at their own cost though , and unfortunately the environment. Homo Sapiens can be both one of the dumbest and smartest animals on the planet.

      • Tim Forcey 3 years ago

        Meme: Ask folks how they think a refrigerator manages to shift heat from a cold place (inside the fridge) to a warmer place (the kitchen). A fridge is a heat pump. It pumps heat “up hill” from a cold place to a warm place….

        • Alastair Leith 3 years ago

          good analogy

  7. Radbug 3 years ago

    Methanol, especially American methanol, is coming. It’ll be very cheap and very easy to transport. ps. The domestic price higher than the export price? Isn’t that called “Dumping”?

  8. carter 3 years ago

    Weak article. No mention of growing demand of LNG in India, Europe and more.
    Increasing demand for FSRU’s.
    Bruce needs to do better research.

  9. Lyn Brook 3 years ago

    I have gas and solar – an informative read

  10. Dennis Kavanagh 3 years ago

    Last October I went off gas entirely, saving the daily gas service charge every day. My free standing induction cooktop and electric oven is great. My electric heat pump water heater is great. My 4 reverse cycle heat pump air conditioners are great for both summer cooling and winter heating on a room by room needs basis. My new 4 star fridge is very efficient. My daily use is now at 6.0 kWh for my small household.

    I suggest everyone swaps their gas appliances to efficient electric appliances as you can afford it and as they get close to their end of useful life.

  11. Dennis Kavanagh 3 years ago

    Clarifying my last comment, the 6.0 kWh use per day is the average daily use over the last year with more use from winter heating and less use when neither heating or cooling is used (which is about half the days each year).

  12. johnward154 3 years ago

    If ever an LNG ship ruptures a ring of very dense gas moves outwards in a circle .The face of the gas is about 20 feet high and the cloud is to rich to ignite and shaped like a disc.
    As the edge of the cloud reaches down town Sydney a spark will ignite the leading edge where the gas is mixed with air. A wall of fire 20 feet high will burn buildings above the advancing gas face they are engulfed. , while people at ground level will suffocate immediately they are engulfed.
    Never let this crap into a city on a harbour.

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