Local gas suppliers aren’t in crisis – soaring prices are going according to plan
The Australian gas industry isn’t in crisis; it’s in heaven. Its profits and share prices are rising even faster than its greenhouse gas emissions, and everything is going according to the plan it has been working on for more than a decade. For everyone else, real wages have had their biggest fall since records began, interest rates and inflation are rising, and the cost of living is skyrocketing. While Scott Morrison’s gas-fired recovery never arrived, record prices for gas certainly have. The ASX is down, but share prices for gas giants Shell and Chevron are up 40 per cent in the past year alone.
For decades, Australians were told that if we fracked more farmland and mined more coal we would have cheap reliable energy, and this winter the big lie has been revealed. Ironically, until 2016 Australians could already rely on relatively cheap gas to heat their homes and fuel their factories. Then the gas industry spent $80 billion on infrastructure, making it possible to start exporting gas from our east coast, and now the Australian gas industry, which is actually 95 per cent foreign-owned, can sell our gas overseas at the world price rather than to Australians at the cost of production. Unsurprisingly, it has been putting the interests of shareholders first ever since.
Back in 2015, in the lead-up to the Paris climate talks, none of the gas extracted from Australia’s east coast was exported and our wholesale gas price averaged around $5 per gigajoule. Since then, our production of gas has tripled but the wholesale gas price has surged, ultimately being capped at $40 a gigajoule in June this year. Australia hasn’t been transitioning away from fossil fuels; we have spent a fortune transitioning towards them. Indeed, far more was spent on gas export facilities in the lead-up to Paris than has been spent on renewables since.
Australia is now the world’s largest exporter of liquified natural gas and many businesses now pay more for it than some export customers. Australian households are also paying record prices to heat their water and their homes. This is no accident. To be crystal clear, Australian policy makers did not see high gas prices as a problem to be avoided. This was the plan all along. The Grattan Institute’s Tony Wood reflected this thinking in 2013: “With more than $160 billion forecast to be invested in LNG production, the export industry is good for the economy. Governments should therefore resist self-interested calls from some industries to cap prices or reserve gas for the domestic market. Western Australia should go further, and end its policy of reserving gas for domestic use. Protectionism may provide some short-term price relief for targeted industries, but ultimately it leads to higher prices and damages the economy.”
It’s easier for some people to tell themselves today that politicians are hopeless and can’t plan ahead than admit that, like the gas industry, Australia’s political leaders, state and federal, Labor and Liberal, knew exactly what would happen when they let the gas industry build enormous export facilities. They knew the gas industry wasn’t spending tens of billions of dollars to make gas cheaper for Australians, and they knew that all of the fracking and the environmental harms weren’t going to drive down the price of gas for Australians. They knew it would all be exported for enormous profit, and that customers would pay a heavy price.
No one can predict when sharemarkets will crash or recessions will hit, or what the interest rate will be in 12 months’ time. But the media love a prediction, and often confuse people confidently making predictions to the decimal place with those capable of actually seeing the future. The simple truth is that economists have no such ability when it comes to predicting the exact size or timing of most events. But we do know some things, and it’s always safe to predict the inevitable. It is inevitable that the cost of beachside hotel rooms will rise in summer holidays and the cost of accommodation in the snow will rise in the winter ones. It was inevitable that linking up Australia’s east coast gas market to the world market in 2016 would drive up the price of gas by at least 300 per cent. It’s currently around 700 per cent higher, and would have gone further if prices hadn’t been capped by the market operator.
Before the gas industry spent $80 billion on enormous refrigerators in Gladstone to cool and compress LNG, all of the gas drilled on the east coast had to be sold to local households and businesses. The fact that Asian customers were, at the time, willing to pay three times as much for gas as Australian households was irrelevant, as there was no way to get the gas from here to there. Which is why the gas industry was so keen to spend so much.
It’s hard to imagine what $80 billion worth of gas export infrastructure looks like, but in 2016 in this magazine I explained that it used more steel than 13 Eiffel towers and more concrete than seven Empire State buildings. Ironically, these refrigerators are among the largest users of gas in Australia, though no one has suggested there’s a shortage of gas for the facilities that make all the exports possible. And let’s not forget that the emissions from Australia’s gas exports dwarf the emissions from all Australian manufacturing combined.
In 2013, I wrote in the Herald Sun that “huge gas export facilities under construction in Queensland will soon allow gas producers to sell their product overseas. Then we will all have to compete with the overseas market and pay the world price.” I didn’t have a crystal ball when I made that prediction. I didn’t know what the exact price gas would be or the exact day prices would rise. But like a chemist predicting what happens when you add fire to gunpowder, it’s not hard for an economist to predict what happens when you add the entire world gas market to the potential customer list of the Australian gas industry. I wasn’t the only one who knew. The gas industry knew. The state governments knew and the federal government knew. It was obvious.
But that’s all in the rear-view mirror. The question is what we should do now. Should we keep taking advice from the gas industry and its parliamentary boosters, or should we think for ourselves about what’s best for Australia and who to trust to achieve our goals?
Just as it was obvious that letting the gas industry export our gas would drive up the price, it’s also obvious that opening new gas wells will do nothing to help push energy prices down in the short term (they take years to develop) and, at best, make a trivial contribution in the long term (global factors dominate the world price, not our decision to open new wells). But despite the obvious lack of any link between drilling for more gas in Australia and the price of heating a home, the new Labor resources minister, Madeleine King, recently spouted the gas industry’s old lines, arguing that despite the recent trebling of Australia’s gas extraction, approving new gas wells in Narrabri would “help the population of NSW address a future power crisis. It avoids a crisis, is what it does, because it means more gas closer to your systems.” Lest there be any room for doubt about the consequences of standing between the gas industry and its profit growth, the new minister went on to warn that “for the good people of NSW, they need to consider what they really want. And I imagine they still want to be able to turn on their television and keep their fridge running.”
East-coast gas production has risen by almost 300 per cent over the past decades, but the “shortage” story is still used by gas boosters to crash through the social, economic and environmental barriers to their endless expansion plans. Farmers don’t want more fracking on their land. Indigenous communities don’t want enormous gas facilities built on their rock art. And those worried about climate change don’t want more fossil-fuel emissions. Which is why the public is offered the phoney choice between more gas or more blackouts. The argument is as old as it is dodgy.
Back in 2013, Ross Gittins, the economics editor for The Sydney Morning Herald and The Age, belled the cat when he wrote that “the gas industry is working a scam on the people of NSW, in collusion with other business lobby groups and federal and state politicians. It’s trying to frighten us into agreeing to remove restrictions on the exploitation of coal seam gas deposits. Failing that, the various parties want to be able to lay the blame for an inevitable jump in the price of natural gas on the greenies and farmers.” But those who stand to make billions never let the truth get in the way of a good scam.
The gas industry will never stop gaslighting Australia, the only question is whether the public, and our parliament, will keep falling for it. The Norwegian government taxes oil companies at 78 per cent. The United Kingdom’s PM Boris Johnson recently imposed a 25 per cent windfall profits tax. But here in Australia, four out of the five biggest gas miners paid no income tax at all in the seven years to 2020. And we are still pretending that the best way to rapidly decarbonise our economy is to further expand our fossil-fuel industry. The first thing we should do is follow the UK and introduce a windfall profits tax on the gas profits driven by the war in Ukraine. The second thing we should do is hold a royal commission into who knew what and when about one of the most expensive policy mistakes in Australian history. And the third thing we need to do is stop falling for the idea that it is market forces, rather than political decisions, that are driving up our cost of living.
It’s not just the gas industry that is gouging us under the cloak of “market forces”. After 20 years of being told that privatisation and deregulation was the best way to provide affordable and reliable electricity, the Australian Energy Market Operator recently had to suspend the entire marketplace for electricity because of the gaming, gouging and profiteering of our biggest electricity generators.
Markets can and do play an important role in setting some prices, sometimes. Few people want the government to regulate the price of coffee or cakes, and even fewer want hospitals to set the price for the use of their emergency wards. Deciding which markets to deregulate, or how best to regulate them, are not economic choices but democratic ones. And for decades the fossil-fuel industry has used its power over our democracy to ensure it could convert its market power into big profits and small tax bills. We should never expect it to stop exploiting our resources or our democracy, but we should expect our elected representatives to push back on our behalf. We will know soon enough if the political signal sent in the recent election has really been heard.