An agonising week has passed since I revealed that a significant part of Australia’s food industry plus other major industrial gas users were being destroyed or badly damaged by the so-called “blood money” gas supply disaster.
The events of those seven days have confirmed that only one individual – Christopher Eyles Guy Bowen – the Federal Minister for Climate Change and Energy has the power and the ability stop the blood flow and contain the damage to the nation.
During those seven days, I learned that Australia’s largest food and vegetable glass house operator is caught in the “blood money” saga.
Get ready for big supermarket fresh food turmoil unless Bowen acts decisively and quickly.
I also learned that a proposal has been put on Bowen’s table to enable most of those enterprises being hit to survive.
I will detail the proposal below. I emphasise that, while better proposals may emerge, they will need to be quick.
At least we now have one workable solution.
My long term readers well remember that some three years ago Chris Bowen and myself did not have the same view about franking credits.
Today’s situation is very different.
Bowen did not in any way create the mess and this time, I am pleading for him to intervene to help both the industries and food consumers. .
The facts are straightforward.
The Weston Energy company signed fixed-price gas supply contracts with a series of food growing and processing enterprises and other industrial users in the vicinity of $9.50 per a gigajoule (GJ).
The current price is around $40 a GJ.
There were also other Weston fixed price contacts that offered capped price escalation.
Weston Energy signed supply deals with both Exxon and Santos to satisfy all or part of these supply contracts.
The Energy Regulator declared that Weston was no longer in a position to be a retailer of gas and ordered that Exxon and Santos to supply that “$9.50” gas not to the impacted sections of industry, but rather to a so-called “retailer of last resort” AGL.
And so on most days since May 31, Exxon and Santos have been supplying to AGL gas around $9.50/GJ, which has a market value of around $40/GJ.
The regulator’s actions have not helped in any way the beleaguered enterprises.
If the current situation continued for a year, at today’s market prices it would generate “blood money” in the vicinity of $200m, devastating food and other industries.
AGL say they don’t want the “blood money” but claim they it can’t allocate the gas to its rightful beneficiaries until they have a full list of Weston customers and their contracts. Weston itself is not at all happy with the way the regulator intervened and is canvassing taking action against the regulator, perhaps to regain access to the low-priced gas.
It is therefore unlikely that Weston will provide a list of customers and contracts.
Trying to force disclosure could see the matter bogged in courts for months if not years.
We are therefore in a deadly stalemate and the industry’s trust in the large institutions involved – the regulator; the major upstream producers and the retailers is at low ebb.
They believe Chris Bowen can and will intervene.
The regulator appears to be stymied by an act that never envisaged such a situation.
The following solution comes from the Eastern Energy Buyers group, which is able to organise such a solution because uniquely, in its ordinary business, Eastern operates under an ACCC trade practices approval to assemble industrial customers to jointly purchase gas (and electricity).
That approval can be used to enable Eastern to talk with Weston customers and it has already mustered a large number of those customers and has access to the detail of their contracts.
With assistance from Bowen and the regulator, Eastern believes it can assemble close to a full list of Weston fixed-price customers and their contracts without any involvement of the Weston Energy company.
It would then require an order from the Minister (and/or the Regulator) for Exxon and Santos to supply the gas direct to those Weston customers.
It is possible that the amount of gas in the current Exxon/Santos supply contracts with Weston will not cover all the Weston fixed-price contracts.
Both Exxon and Santos are understandably unhappy that their low-priced price gas is not going to the people who really need it, but is ending up at AGL.
They therefore are open to an arrangement that facilitates fairness and may involve releasing further gas to cover any shortfall.
A retrospective arrangement would be required to reverse the gas that has gone to AGL.
Whether the Eastern Energy arrangement can be organised within the existing act is beyond my knowledge, but if Bowen is prepared to implement such an arrangement, it is almost certain he would get the support of the parliament should it be necessary make retrospective amendments to the act.
This is a matter totally separate from the climate change issues and it’s about rescuing prudent parts of our food growing and processing enterprises and other industries.
Unless the Coalition has disintegrated I can’t imagine them preventing a solution to this problem.
But speed is necessary – bankers can’t keep funding these companies forever.
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