Consumers are subsidising the unprofitable coal seam gas industry

CSG protesters face heavier sanctions. Photo: Peter Rae

After all the heartache, trenchant opposition from local communities and a towering $1.8 billion in write-downs, AGL has jettisoned its coal seam gas program. Santos will likely to follow suit and walk away from its controversial Pilliga project.

It makes no sense after all. Like Gloucester, Pilliga gas is high-cost to produce and environmentally high-risk to extract.

Unsurprisingly, the exit of AGL has lent fresh oxygen to the spurious “gas shortage” argument run by the gas lobby. Memo to APPEA, the public relations machine of the oil and gas industry: NSW has always “imported” its gas from interstate. That is why they have things called pipes.

It was scaremongering from this very same lobby, and from AGL, spruiking their “gas supply cliff” thesis two years ago, which helped producers to whisk through 17 per cent retail price rises at the cusp of the biggest crash in global oil and gas prices in decades.

Ironically, AGL’s Gloucester project would have provided only a little over 1 per cent of NSW supply anyway. It was all for nothing.

Nonetheless, and notwithstanding the present global gas glut, APPEA chief Malcolm Roberts has been hinting at price rises.

That NSW, he said, could soon be “100 per cent reliant” on other states was “a risky proposition in a tightening energy market”.

In fact, the withdrawal of AGL reflects a far more profound issue; that is, the gross destruction of our national wealth which has arisen thanks to the failure of successive governments to stand up to special interest groups such as the gas lobby. We have been nationally hoodwinked, conned, played for fools.

The $1.8 billion which AGL just fracked away, may seem a large figure yet it is nothing compared with the real cost of Australia’s myopic energy policy, if you could call it an energy policy at all (it blithely ignores the revolution of renewable energy).

The Gas Cartel has managed to convince the Australian public that when global gas prices are high we should pay global prices and when global prices are low we should pay 60 per cent more than the global price.

Yes you read that correctly. Australian industry is currently paying 60 per cent more than the global price for gas when Australia is the world’s second largest exporter of gas and will soon be the largest.

Here is what Morgan Stanley had to say about it in December: “Export gas cheaper than domestic; is not socially or politically acceptable. What has yet to have an impact is the potential for future legislative interference if the east coast gas markets continue to tighten with the majority of current gas reserves committed for export.

“Due to gas pricing mechanisms agreed to in some early contracts, significant volumes of gas are being produced by APLNG and on-sold to QCLNG for 20c/GJ with the ensuing volume of LNG now delivered to Singapore and China at landed prices that are currently lower than city gate prices in eastern Australia.

“At $US50 Brent prices, the field netback for export gas would approximate $US3.50/GJ, which would be cheaper than domestic gas prices, which are quoted in the $A7-$9/GJ range. This is not a sustainable situation in a tightening domestic market.”

The price of oil has dropped hard since then, placing further pressure on oil-linked export contracts. Brent crude now fetches $34.06.

Australia produces gas as cheaply as anyone in the world from our globally competitive offshore gas fields. Where we are uncompetitive is in the high-cost east coast onshore CSG fields. To try to make the globally uncompetitive CSG industry profitable the gas cartel is keeping domestic prices artificially high by controlling supply.

It is, says an analyst and a beef farmer who has campaigned against CSG developments, Bruce Robertson, “classic cartel behaviour” and “the relevant authorities stand by and allow this illegal activity to continue without lifting a finger”.

“Our industry is moving offshore to secure cheaper sources of energy and our domestic consumers are being milked.  If you consume gas in Australia you are paying too much.”

Effectively, the Australian domestic gas consumer is subsidising the unprofitable coal seam gas industry.

Things are changing quickly though. The crash in energy prices may exact a heavier toll. It threatens the very survival of some of Australia’s largest resources companies such as Santos and Origin Energy, both of which face drastic asset write-downs in the impending profit results season.

So dire is the outlook that one broker, JP Morgan, is valuing Santos at minus, yes minus, $1.51 per share.

The mooted LNG export boom which was to have driven the next leg of Australia’s prosperity is no more. APLNG, Origin’s LNG project, has even dragged the Queensland government into court, challenging the government’s right to collect royalties.

UPDATE: An earlier version of this story has been updated to include relevant details about Mr Robertson’s background.