Sufficient, cheaper gas must stay here

A massive cargo ship carrying natural gas departs Darwin. Picture: Justin Kennedy

Of course the Federal Government is entitled to and indeed must force sufficient Queensland gas to be redirected into the Australian grid to supply both business and consumers, rather than be exported.

This basic point really is beyond argument.

The Federal Government has just as much the absolutely basic duty to 26m Australians to ‘keep the water hot’ as to ‘keep the lights on’. It also has the power to do so. Although – and I haven’t seen this realised – it could prove expensive. For taxpayers.

But equally, there’s a real problem with going down this path when the basic reason for the gas shortage this year and the predicted much larger shortage next year is state governments wilfully prohibiting or hindering, to the practical point of prohibition, the finding and development of gas. There’d be both zero shortage and much lower prices, if Victoria had allowed known gas fields to be developed and new ones searched for, if the Narrabri field was already in production.

But equally again, the gas export companies are not exactly lily-white, as they buy gas from other domestic producers, thereby taking it out of the domestic market and redirecting it to export.

The dynamics are complicated. The exporters both deliver gas into the domestic market under contract, while also buying gas from third parties – gas that could otherwise go into the domestic grid. Until 2020 the exporters sold more gas into the domestic market than they took out. They were net suppliers into the domestic market. They would of course have been much bigger net suppliers if they hadn’t taken any gas out from third parties.

The ACCC estimates that this year the exporters will take more out from third parties than they sell domestically.

Next year the ACCC estimates the ‘take-out’ will be much larger. Hence the much bigger shortage forecast. Hence the ACCC demand the Government use its power to keep the gas here. Now the reason the exporters have been doing what they’ve been doing is a five-letter word and it does not spell w-a-g-e-s.

They get a much higher price for exported gas. Funny about that: how ‘other people’, like 3bn-plus of them, desperately want our gas (and our coal) more than ‘we’ do. The ‘we’ covers climate activists, weak-kneed business ‘leaders’ and – there really is no other word for it – idiot politicians.

And all that has collided head-on with the profit motive.

Of course, we wouldn’t have any of the gas at all without the ‘profit motive’: the expectation of profit that underwrites the billions of dollars needed for exploration and development, and investors prepared to take the risk.

In recent decades, the bigger risks have been red, green and black tape, not old-fashioned conventional business risks.

But again, in the resources space, ‘profit’ and the sharing of that profit between the risk-takers and 26m Australians adds further complication to all this. After the early years when gas prices were low and the Queensland exporters had to write off billions of dollars of investment, they have been creaming it in the last few years and especially this year and likely next as well thanks to a certain Vladimir Putin.

The exporters would be wise to ‘volunteer’ their gas rather than see it effectively confiscated. They need to guarantee a net inflow for 2022, 2023 and at least 2024. That’s, net of any domestic third-party purchases.

Equally, ‘somebody’ has to commit to buying this gas. And at a ‘fair’ price, somewhat, significantly lower than the global price.

A final point: All exporters should have to be part of the supply, not just the Queensland ones. Offshore producers would not have to supply the physical gas, just via book entries.