The gas club’s deals, like their product, are not to be seen

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Investing overseas: Incitec Pivot’s James Fazzino has slammed the lack of an energy policy as ‘a train wreck’. Photo: Louise Kennerley

The fury over the ANU’s fossil fuel divestment is the greatest red herring since 19th century English polemicist William Cobbett used a rotting kipper to distract his hunting dogs from chasing a hare.

In a free society, why should an independent institution not make its own investment decisions without undue pressure from government and its champions of vested interest?

Tony Abbott, equally, is entitled to call it “stupid”. But the overkill, from press and politicians alike, over a $16 million parcel of shares has been so harrowing, so endless, it is almost quaint.

Illustration: Kerrie Leishman.

Stanford University has done the same. No hysteria there. Glasgow has done it, too, to positive press. Add to these another dozen universities and colleges and the likes of the Rockefeller Brothers Fund, the British Medical Association, the World Council of Churches and, last week, the Anglican Church of Canberra and the Anglican Super Fund.

As in all things, time will tell if they have made the wrong decision.

In the meantime, if there were a debate of substance to be had involving Santos and its peers, it might begin with the proposition: is the gas industry a cartel?

Australia will soon be the largest exporter of gas in the world. We are bathing in the stuff. Still, beleaguered consumers are forking out wholesale gas prices of about $7-$8 a gigajoule. The second largest exporter is Qatar where the locals pay $1-$2 a gigajoule.

Despite the fact that actual demand is falling sharply, the gas lobby seems to be sticking to its mantra that prices will triple.

We must urgently open up prime farmland for coal seam gas production, is the cry, or else the job losses will be too much to bear, the soaring prices will cripple us.

So, is this a cartel? While big industrial gas buyers are being told there is a mega supply squeeze, the sellers are piping it up to Gladstone to be turned into LNG and shipped off to Asia.

The situation seems to enjoy all the requisite qualities of a cartel: a small number of companies controlling production and marketing and which appear to avoid competing with each other.

Sounds eerily like Australia’s big four banks battling for market share on the airwaves while their products move relentlessly in interest-rate sync. That is a subject for another day.

Like the banks, Santos, Origin and AGL – with their dominant market position – compete when it comes to advertising and product differentiation but, apparently, not on price. To these well-known local names we can add Britain’s BG and Shell’s Arrow Energy.

While concealing production information even from government, not to mention meaningful detail on their export contracts, the gas club is sticking to the same song sheet with the precision of the Vienna Boys’ Choir.

They tell us we have to shift our domestic gas market to world parity prices and this is why we are paying $8 a gigajoule.

Gas fetches less than $5 a gigajoule in the US, the world’s largest economy. That’s 60 per cent of what we’re paying.

In China – and this is a stunning paradox for an importer – the domestic price for gas is 14 per cent less than in Australia even at $7 a gigajoule.

“In Australia, we are not paying world ‘prices’ for gas, we are paying a substantial premium,” says energy analyst Bruce Robertson.

“It is little wonder that Incitec Pivot chief executive James Fazzino has slammed the nation’s lack of an energy policy as ‘a train wreck’ and says companies are shunning local growth projects because Australia is not an attractive place to invest.

“Incitec Pivot recently made the decision to invest $US850 million [$970 million] on an ammonium plant in Louisiana, USA, rather than in Australia, as a ‘strategic response’ to high costs at home.”

Not only is the gas industry foisting its price hikes on consumers, says Robertson, it is also using high prices as a method of developing a high-cost domestic source of gas, that is, coal seam gas.

“This will permanently lock in high domestic Australian prices for gas at the expense of the Australian economy and domestic wealth,” he says.

A good deal of the problem stems from the vacuum of information on supply and demand.  Policy makers and consumers in eastern Australia are left with little choice but to accept industry claims that wholesale prices will triple.

This despite the statement from the NSW Minister for Resources Anthony Roberts: “I am not aware of any public policy maker in Australia who has a detailed understanding of how much gas is being contracted to overseas customers. I am not aware of any public policy maker that knows whether the east coast gas market has the ability to deliver this without causing domestic shortfalls.”

One of the defining characteristics of a cartel is the control of supply and pricing. A lack of transparency enables price fixing.