Gas supply crunch is a giant conspiracy, activists claim

October 20th, 2017


Fans of economic mumbo jumbo have had a field day this week as anti-gas activists do their best to decry new sources of supply as being both unnecessary and of no use in putting downward pressure on prices.

Renewables lobby group the Institute for Energy Economics (IEE) is right at the top of the list, up there with northern NSW activists with their special brand of what in the movies is called ‘suspension of disbelief’.

As the Prime Minister has said recently, it is a well understood and accepted basic tenet of economics that increasing supply is one of the most direct ways to put downward pressure on prices.

This is precisely the history of the East Coast gas market for many decades, dating back to the first Bass Strait gas in the late 1960s.  From then to the turn of the century, east Coast gas prices were among the lowest in the world.

Just don’t expect the IEE to acknowledge this.

In its special world, the price of gas is now high compared to historic levels because the gas companies have designed it this way – they are price gouging, according to the IEE.

If this is the case, they are very slow learners, and so is the Australian Competition and Consumer Commission, which is the policing authority for illegal cartel behaviour.  What were the gas companies thinking about for the previous 50 years, before prices started to rise?  Is the IEE seriously suggesting that back in the 1960s, sophisticated global companies such as BHP and Exxon  worked out a strategy to offer gas at world’s lowest prices for 50 years, to then spring price rises in the mid 2010s, just as their reserves are in decline?

Perhaps these companies also planned decades ago that part of their strategy would be to warn the market that a supply crunch was approaching in the years before it arrived.  Perhaps they thought it would be a good idea to alarm their biggest customers – industrial manufacturers – plus 4.5 million small businesses and consumers about the possibility of a crunch.

The truth is of course that no such plan ever existed and the suppliers were simply doing the responsible thing in 2012/13 when they started warning their customers about tightening supply in the years ahead.

The IEE doesn’t stop there.  In the same way activist groups try to block new supply coming to the market from Narrabri, in north-west NSW, it attacks the supposedly disastrous new coal-seam gas (CSG)  export industry which has sprung up in Queensland in the past few years.

IEE reckons the new CSG industry is a dud.  So does the ‘NoCSG’ group at Coonabarabran, a small town near Narrabri.

Never mind that the new Queensland CSG industry has revitalised towns in south-west Queensland, and created an entirely new export industry at Gladstone that is providing employment, important national export income and hundreds of millions in State royalties that can be spent on roads, schools and hospitals.

No, it is a dud, according to the voodoo economics of the IEE because it is “producing globally uneconomic, high cost gas”.

However, the IEE says at the same time that it is “financially advantageous” for the companies “running this national sideshow”.

The IEE is onto something entirely new here – a product which is both “uneconomic” and “financially advantageous”.

It might not pass genuine economic scrutiny, but perhaps the IEE justifies this proposition on the basis that it is a product of a giant Government-industry conspiracy.  According to the IEE, there is no gas supply crunch – it is all a sham!

The ‘NoCSG’ Coonabarabran group follows suit in the local Press, warning people against listening to either “the gas cartels” or the Federal Government, because they are all party to a great conspiracy – a “manufactured gas crisis”.

According to ‘NoCSG’ Coonabarabran, “we have way too much gas in the gas network”.

Apparently the ACCC does not have much cred in Coonabarabran, because it clearly identified the looming East Coast gas supply crunch as far back as the first half of 2016.

Perhaps ‘NoCSG’ Coonabarabran would benefit from circulating among members ACCC chairman Rod Sims’ speech from March this year, entitled “Recognising Australia’s East Coast gas crisis”.

‘NoCSG’ and the IEE might find it particularly useful to focus on the section of the speech which refers to the need for bringing new gas supply into the market as a means for putting downward pressure on prices.

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