Turns out manufacturing is alive and well in Australia. Only these days we’re manufacturing crises. This week’s exhibit is from the gas industry, which having witnessed the energy market regulator’s grave warnings that we’d all be having cold showers in the dark in a couple of years, found itself summoned to the Prime Minister’s table.
“It is not acceptable for Australia – shortly to become the world’s largest exporter of liquefied natural gas – to not have enough gas for its own families and its own businesses,” boomed Malcolm Turnbull ahead of the meeting. And he was right. What was far less clear was why this arrangement had been so perfectly acceptable for so long.
Turnbull’s constitutional threat on gas
The Prime Minister is threatening to impose export controls on gas exports if domestic demand is not satisfied.
Let’s be clear: there is no gas shortage. Not in Australia, and not around the world. In fact, there’s the opposite: a global glut of the stuff. BHP has already admitted there’s enough gas in Bass Strait to supply the east coast “indefinitely”. And globally, by the end of 2015 the gas industry was capable of producing about 25 per cent more liquefied gas than the world wanted to import.
By 2020, production capacity looks set to increase another 30 per cent. Even if demand is increasing – and that’s not absolutely clear – it’s not keeping pace with that. The world’s biggest importer, Japan, has been reducing its demand for several years, and according to its own government, will be buying 30 per cent less gas by 2030 as it turns its focus to renewables.
What there is, then, is a monstrous failure of policy. If Australia’s soon to be out of gas, it’s only because we keep shipping it overseas. This has been happening for years under the noses of governments of both persuasions, and none of them has cared to do anything about it.
Perhaps that’s because of a prevailing wisdom that such decisions should be left to the market. But here’s the problem: the gas industry isn’t really a market. It’s an oligopoly. It has very few providers, operating under very little regulation. They can charge who they want whatever they want, safe in the knowledge there’s no meaningful competition to challenge them, and no meaningful government policy to control them. Where there is some competition – that is, overseas – gas prices are lower. That’s why we have the bizarre situation that you can buy Australian gas in Asia for something like two-thirds the price you can buy the same gas here.
No one else does this. Americans pay a third of what we do for their own gas. Qataris pay even less. That’s because they either have properly functioning markets, better regulation, or ensure they keep enough gas for themselves.
Here, only the West Australian government figured it should do something similar, imposing a requirement that a certain amount of gas be reserved for domestic use. And our gas companies have simply abused this. They refused to offer Australian companies gas prices for the long term, so businesses had no idea how much they’d be paying – a policy that caused some companies to set up elsewhere.
Illustration: Andrew Dyson
When they did offer gas prices, they made them exorbitant and refused to negotiate. We know this because the ACCC identified it last year, saying Australian industry had received “few, if any, real offers for gas”. The result is an entirely artificial “shortage”, triggering an equally artificial crisis. This, frankly, is a rort.
So it was all very encouraging to hear Turnbull boasting this week about the size of his constitutional stick. “We have a responsibility – which we do not shirk from”; the industry understands the gravity of its “social licence” to operate. Et cetera. But the government has steadfastly refused to use that stick previously. And when you have gas companies slugging Australians record prices while charging their Asian customers record low prices, it’s a little hard to believe they stay awake at night worrying about the terms of their “social licence”.
A gas prospect in Bass Strait. Photo: Jessica Shapiro
What’s much easier to believe, though, is that the gas industry is desperate to get its hands on gas supplies that are off limits – especially controversial ones like, say, coal seam gas. And if they have to offer a little more domestic supply to do it – at a time when global demand is slowing anyway – then it’s hardly a sacrifice. Oh, and as it happens, that’s exactly what Turnbull would like to offer them, hence his condemnation of the states’ bans on further gas extraction.
It’s a neat trick, really. Take a country with enough gas to supply itself “indefinitely”, send the vast majority of it overseas, refuse to sell locally at a fair price, create a domestic shortage, then demand access to some of our most environmentally sensitive resources as though it’s an emergency measure.
Energy Minister Josh Frydenberg (left), Senator Arthur Sinodinos (right) and Prime Minister Malcolm Turnbull, who held talks with the gas industry over domestic supply. Photo: Alex Ellinghausen
And if you’re going to pull a trick like that, this is the government to pull it on. Sure, Turnbull announced some useful initiatives to increase transparency in the market. But the Turnbull government’s energy wars have led it to the point that it simply cannot resist any opportunity to turn this back on the (Labor) states. It’s only too happy to paint this as a problem of Victoria or South Australia’s creation, as though gas companies have been passive observers, buffeted by market forces rather than subverting them. Well, now those companies can passively observe as the political campaign revs up to give them much of what they want. That’s their carrot. Sticks, it seems, are only for political foes.
Waleed Aly is a Fairfax Media columnist and a presenter on The Project.