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Jumpin’ Jack Flash? It’s ‘bout gas, gas, gas!

By Geoff Carmody - posted Friday, 12 May 2017


On the first question, are businesses signing up to deals that cause market failure by eliminating arbitrage?

On the second, are governments gumming up the market with impediments to effective arbitrage?

Media commentary suggests longer-term contractual obligations bind major gas suppliers and prevent arbitrage. Really? If suppliers can buy from here or overseas, this is nonsense. If they can't, why not?

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On the second question, beyond banning further gas supply in some states, are there government controls stopping increased gas imports? If yes, why try to stop imports if you are threatening to stop exports? This is hardly a business failure. It is fixable quickly by changing government policy. If no, are government policies adversely affecting investment expectations, undermining investment in base-load supply?

Some simple, urgent, questions to suppliers

Why can't we get answers today to the following obvious questions (the answers must already be known):

  • Do existing export contracts force local suppliers to divert local gas to low-priced export markets?
  • Are contracts to deliver gas supplies to contracted buyers typically so specific on sources of supply?
  • When were such contracts signed? Were existing supplier managements and boards involved?
  • On what basis were they signed? What were suppliers' expectations about gas market prospects?
  • If those expectations were wrong, who formally takes responsibility for them? With what penalties?
  • Should shareholders and management accept their standard responsibilities? If not, why not?
  • Should Australian business and consumers generally cop the cost of suppliers' business mistakes?
  • Are there ways, consistent with existing contracts, to arbitrage away from local sources of supply to foreign supply to meet contractual obligations to foreign buyers (so-called 'swaps')? If so, why isn't the market itself sorting this out already? If not, why not?

On the wider investment environment, what are governments doing that affects investment incentives?

Do we have to wait months (or more?) for an ACCC probe to get the answers? Surely they are known right now (to some anyway). Surely 'commercial-in-confidence' isn't a cover for commercial incompetence? Is it?

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Has traditional base-load energy supply been cut before alternatives are available? Why?

Governments want more renewables to cut emissions. Some emissions reduction urgers are now arguing that we should bypass even gas and go straight to more – not less – reliance on renewables! The rich (eg, some in Point Piper and even people like me), and possibly some academics (eg, at the ANU) quite possibly can afford to do so. Lower income groups wanting reliability can't.

Gas is a lower-emissions reliability back-up energy source for intermittent renewables. But local gas supply is shrinking relative to local demand, while renewable supply (and grid volatility and unreliability) surges. Coal is on the outer.

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About the Author

Geoff Carmody is Director, Geoff Carmody & Associates, a former co-founder of Access Economics, and before that was a senior officer in the Commonwealth Treasury. He favours a national consumption-based climate policy, preferably using a carbon tax to put a price on carbon. He has prepared papers entitled Effective climate change policy: the seven Cs. Paper #1: Some design principles for evaluating greenhouse gas abatement policies. Paper #2: Implementing design principles for effective climate change policy. Paper #3: ETS or carbon tax?

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