Full marks to PM over gas giant orders

Malcolm Turnbull has taken the first step to avoiding what I believe is the greatest peace time crisis since the depression.

Australia's Prime Minister Malcolm Turnbull (left) and Australia's Energy Minister Josh Frydenberg. Picture: AAP

With the new export gas measures, Malcolm Turnbull and Josh Frydenberg have taken the first step to avoiding what I have called ‘the greatest peace time crisis to face the nation since the depression’.

Clearly we don’t yet know the detail but my full marks go to our Prime Minister, Energy minister and the rest of the cabinet. If the Gladstone three — the Santos, Origin and Shell consortiums — are unhappy I say ‘too bad’. No nation can allow its industries to be destroyed by the actions groups like the Gladstone three.

I will return to that later. My qualification is that their mistakes would not have threatened the nation had it not been for two of the most appalling state governments we have seen in decades - the current NSW and Victorian administrations. They stopped gas development to pander to green votes and in the case of NSW please radio commentators.

And the gas in both states was available without fracking techniques, which have caused controversy.

And while these irresponsible governments were creating chaos in gas, they also threatened our power supplies so, unless the weather is very kind or urgent measures are taken quickly, Sydney and Melbourne face blackouts next summer.

As a business commentator, I took the view that it was my job to explain to readers, including politicians and public servants, just how dangerous the energy situation has become for the nation and look for ways out. This has been the biggest danger alert I have undertaken in a long time and I list some of the recent commentaries at the bottom of this article.

I believe my commentaries played a role in the government action on gas, but we must now tackle power which is actually, if anything, more urgent. We will probably have enough gas to get through this winter but it was a tight thing so action was required, especially as the locals were paying far more for gas than the export market. No government can allow that to happen and I am stunned that the CEO’s in the Gladstone three consortiums did not understand that.

In the case of gas, large sectors of our industrial base including Port Kembla and the Altona petrochemical complex were set to shut if gas became unavailable or too expensive,

No national government worth having will stand for that. The gas market is complex and detailed knowledge is required to get the price and quantity policies right. Accordingly exactly how the diversion of gas and price settings will work can wait until the detail is assembled. (By contrast in the 457 visa debacle the government blundered in the with details on day one and hit the wrong people.

The market purists will say that no action should have been taken on gas. I totally disagree. We had to take action. In share markets we have detailed rules for ”shorting”. Selling gas you did not have is shorting in the energy market and those who do it must realise the risks and face the consequences.

If course not all the Gladstone three shorted gas and covered the shorts by bidding up the price of domestic gas. Indeed it was only the Santos consortium that appears to have done this. But the Origin and Shell consortiums built LNG plants either knowing or suspecting that the Santos consortium had sold gas it did not have.

Part of the Santos shortfall came because it counted on gas in a joint venture with Origin. When Origin received a takeover from Brutish Gas in 2008 it decided to use its share of the joint venture gas as part of its reserves to back a LNG plant. The forecast rewards from the LNG plant helped defend the takeover but Santos was left exposed. And Shell has gas in the Bowen Basin, which was expected to be developed for Gladstone or the local market. Shell says Bowen has proved to be too expensive. But its Chinese partner in Gladstone is different to its Chinese partner in Bowen. That complicates the issue. The government measures will crystalize everyone’s thinking. It’s clear all three of the Gladstone three consortiums will take pain but it is reasonable that the Santos consortium take more pain than the others.

Longer term we must get more gas.

Fortunately there plenty of gas in NSW and Victoriaand the next step should be to punish those state governments for their disregard of the interests of their populations. But more urgently, the nation must force the delinquent states to recognise the power crisis they have created and then do something about it quickly.

Here are some of my recent commentaries

• A plan to avoid a power crisis
• Blackouts on the way amid gas shortage, energy price rises
• From the great Liverpool Plains to the rugby field
• Stakes raised over gas ‘crime’
• Leaders must get proper advice and level with the people
• Energy crisis: time to invest in emergency power
• Energy crisis risk is criminal
• Mistakes caused the energy disaster — what other damage is being done?
• Energy crisis will be worse than expected, with costly blackouts coming
• Australia’s energy mess to spark our own Trump revolt
• The people will punish our energy vandals
• An Easy Fix for our East Coast Gas mess