THE FACTS ON AUSTRALIAN GAS PRICES

The Turnbull Government’s inability to adequately address Australia’s energy crisis has led the Government to distract attention from their failings through a dishonest campaign about Labor’s record on gas.

 

The development of Australia’s LNG export industry pre-dates the Rudd Labor Government and goes back well over a decade.

 

In 1997, the newly elected Howard Government removed export controls from gas and other commodities – a decision opposed by Labor at the time. These export controls were the only legal mechanism available to the Commonwealth to manage the export of Australia’s resources in the national economic interest. In its 2004 Energy White Paper, the Howard Government flagged its support for the development of a LNG export industry, and rejected any controls or reservation of Australian gas.

 

The establishment of an east coast LNG export industry was widely understood to drive ‘parity’ between domestic (east coast) and international gas prices. Indeed, Resource Minister Ian McFarlane stated in 2014: “Gas is now being sold in Australia at an international price. That’s the reality of a world market.” [3 August, 2014, ABC]

 

Responding to skyrocketing gas prices in April this year, Senator Canavan said “a more appropriate price would, of course, be what’s known technically as the netback price: that is, the price that exists in Asia minus the costs of getting it there… In connecting our market up to the world that’s what we were expecting and that’s what was the promise” [27 April, 2017, ABC]

 

On the same day, speaking on the Australian Domestic Gas Security Mechanism (ADGSM) the Prime Minister said, “It will ensure that the price of gas in Australia is at levels comparable to that in the international market, because it is a global commodity. The point is, Steve, there is a global market for gas. We all get that.”

 

On 30 April, 2017 on ABC’s Insiders, I said: “There were assurances given by not just industry, but general analysis of what the impact of the export operations would be, that the price of gas in the eastern market of Australia would be moved to the Asian price minus the cost of refrigerating and transporting the gas, which is known as the net back price.

 

The gas crisis we are currently experiencing is characterised by domestic gas prices significantly in excess of international prices. This gap is driven by a shortage in the domestic market caused by of the diversion of gas to the export market.

 

This was not flagged in advice to the last Labor Government, and it was not flagged by industry. In fact, the LNG operation which diverts the most domestic gas, Santos’ GLNG venture, explicitly stated regarding the GLNG venture: “it is not diverting gas from local markets to export markets” and “Therefore the project has no direct implications for domestic gas prices”.

 

When speaking to David Speers on Speers Tonight, 31 August 2017, I stated “everyone knew there was going to be an impact on prices but the problem we are confronting now is that the pricing impact is not just moving into an Asian price, which might be $9 or $10 per gigajoule. The price we are actually seeing in the manufacturing sector is now $15 and even more than $20 a gigajoule because there is scarcity in the market”. That is entirely consistent with my response on Insiders in April.

 

This diversion of gas from the domestic market is why in 2015 Labor adopted a gas export national interest test – to ensure we would not see a repeat of the current gas crisis, yet the Turnbull government remains opposed to a National Interest Test to ensure exports are in the broader national interest.