Extract from ABC News
There's a fine line between acting in haste and being decisive.
After just a fortnight in office, the Albanese government has been confronted with a crisis that has been a decade and a half in the making.
The bitter irony of it all is that, when it comes to energy, Australia is one of the best endowed nations on earth.
It boasts huge deposits of high-grade fossil fuels, including one of the largest supplies of natural gas, and an environment and landscape that is ideal for the new world of renewable energy required to power the globe.
And yet, here we are, faced with a critical failure in energy and electricity supplies that threatens to wreak havoc on the economy, shut down major manufacturing industries and cause a potential spike in both unemployment and inflation.
On a macro level, the obvious culprit — at least in recent months — has been Vladimir Putin and his reckless disregard for humanity with the invasion of Ukraine, which, as a side effect, has thrown global energy markets into chaos.
But we largely have ourselves to blame for the current predicament.
First, a near 20-year battle over the science of climate — primarily waged by the Coalition for political purposes — resulted in a critical shortage of investment in energy generation.
That has left us reliant upon an ageing and unreliable fleet of coal-fired generators that spew huge amounts of carbon into the atmosphere and frequently break down.
And second, we have allowed a cartel of large global energy companies – many of which specialise in tax avoidance – to control our natural gas supplies, dictating terms and price on the Australian east coast.
Both major parties are to blame for that.
A significant portion of that gas now is being diverted towards China, a nation that for the past three years has waged a brutal trade war on Australia and which now is vying for diplomatic and potentially military domination in the South Pacific.
The rest mostly goes to Japan and South Korea.
Most of that exported gas is tied down by inflexible long-term contracts. But more than a third of the exports are sold under flexible short-term and spot contracts.
With global gas prices soaring, that's delivering windfall gains to our gas exporters while inflicting enormous pain on Australian industry and households.
In the meantime, much of the hot air over gas shortages is highly misleading.
Australia doesn't have a gas shortage. It's just that, in the east, at least, we've allowed most of it to be sent offshore.
How the West won the energy war
It is a tale of what could have been. But perhaps it is not too late.
Back in 2006, a contingent of executives from one of the world's biggest energy companies, Exxon, flew into Perth for a showdown with then WA Premier Alan Carpenter over the huge Gorgon gas project off the north-west coast.
While federal politicians were cosying up behind the multinational, local manufacturers were deeply uneasy about the potential for gas shortages and price spikes.
Carpenter's solution? He insisted that 15 per cent of any gas from the new project be reserved for the domestic market.
The Exxon team was livid and delivered an ultimatum. Unless "every molecule of gas" was available for export, they would walk away from the massive project.
Carpenter called their bluff. He thanked them for coming and all the effort and investment they had made.
But, he said, if that was their position, then regrettably, the project was dead and there was nothing left to discuss.
Less than 24 hour later, a more accommodative Exxon executive requested another meeting.
Overnight, he said, they had re-crunched the numbers and they now were confident they could make the project work with the domestic requirements.
The result is that in Western Australia, the sudden spike in global gas prices has barely registered. Gas is available at around $6.50 a gigajoule.
Compare that to the east coast where the Australian Energy Market Operator last week was forced to cap gas prices at $40 a gigajoule after spot and forward markets sent prices into orbit, with $383 a gigajoule recorded on Monday in Melbourne and reports of up to $800 the next day.
For the first time, the regulator triggered the Gas Supply Guarantee Mechanism, citing a "threat to system security" as a result of insufficient gas supply to meet demand.
Once cheap and plentiful on the east coast, gas is a primary source of fuel in manufacturing everything from steel, glass, paper, plastics and fertilisers to food.
While many big firms have medium- and long-term contracts, a large number also rely upon short-term deals and spot prices for extra supply, sending their production costs soaring and threatening their viability.
Unlike their WA counterparts, east coast state governments gave local and multinational energy firms carte blanche to export as much as they'd like.
The real cause for the crisis, however, relates to a catastrophic blunder dating back more than a decade during the Queensland coal seam gas boom.
The energy giants over-estimated the amount of gas in the ground and contracted to sell more gas offshore than they could source.
To cover the shortage, they since have plundered local gas supplies, pushing domestic prices higher.
Their foreign customers now enjoy much cheaper Australian gas than Australians.
Turnbull's gas crisis redux
This isn't the first time we've faced a gas crisis. In 2017, then Prime Minister Malcolm Turnbull was forced to bring the gas exporters to heel.
Australia had just overtaken Qatar as the world's biggest exporter of Liquefied Natural Gas. But the domestic market was facing shortfalls as the exporters squeezed supplies to meet their offshore commitments.
As ridiculous as it sounds, it was cheaper to buy Australian gas offshore, ship it all the way back home and reconvert it from liquid to gas, than to buy it on the local market.
In response, Turnbull created the Australian Domestic Gas Security Mechanism — a strategy designed to limit exports in the event of a domestic shortage.
While it's never been triggered, its creation and the threat it may be used, restrained some of the worst excesses of the exporters.
For a while at least.
Two local energy giants, Santos and Origin, have major interests in two of the three gas export terminals in Gladstone while AGL has supplied gas for export.
Global giant Shell controls the third export terminal.
In each of the three projects, there were problems extracting gas from the new Queensland fields.
Santos, in particular, had difficulty meeting its export commitments. That situation has steadily worsened as the exporters continue to write down the potential reserves in their new gas fields.
And while a federal inquiry in 2019 found the Turnbull government's gas mechanism was working well, the truth is that our LNG exporters continue to siphon east coast gas supplies to supply offshore markets.
Here's an extract from a speech by Australian Competition and Consumer Commissioner Anna Brakey in March, shortly before everything turned pear-shaped.
"LNG producers have been supplying less and less gas into the domestic market for the last five years, and the downward trend is continuing," she said.
And she didn't hold back in apportioning blame.
"It's this rapid and significant reduction in domestic supply from the LNG producers that's contributed to the tight and uncertain conditions in our domestic market.
"And let's be clear – this is at odds with what government was told before the LNG projects were developed. Gas companies assured governments that there was sufficient supply and that domestic gas prices wouldn't go up."
The situation, she added, is only likely to deteriorate in the next few years.
So, what should the government do?
There are two possibilities. The obvious one is to limit east coast exports, particularly those going to China and especially those being diverted to capitalise on the current exorbitant spot prices.
The other is to hit the exporters with a tax that could be used to subsidise domestic industries and households as Boris Johnson's conservative government in the UK has just done.
Both actions will elicit cries of foul play from the energy giants, sovereign risk from export controls and threats to walk away from new projects over a tax.
But there is a greater sovereign risk in allowing one industry to cripple others and damage the broader economy.
To give an idea of just how lucrative the current market is for the exporters, Origin Energy last week confessed that it once again had been hit by shutdowns at its coal fired electricity generators, sending its shares plummeting 14 per cent.
But the pain at least was partially offset by its gas business.
Origin owns 27.5 per cent of one of the three big export terminals on Curtis Island off Gladstone. And the windfall gains would be delivering an extra $300 million than previously expected this year, taking its total annual take from the project to $1.4 billion.
Multiply those numbers by a little under four to get an idea of the total extra returns the energy giants in the APLNG project will reap this year. Then consider the two rival projects and you start to build a picture of just how much money is involved.
And while this is a topic for another day, bear in mind that despite our booming gas exports, revenue from the Petroleum Resources Rent Tax is less now than 20 years ago.
Gas was supposed to be the transition fuel as we weaned ourselves off coal and into a renewable energy future.
In addition to manufacturing, it is a key element in determining electricity prices and without swift action, east coast energy bills are likely to soar, feed into inflation and further pressure interest rates.
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