Coal prices have crashed, the carbon tax has gone, yet the cost of electricity continues to rise. Oil prices have halved, yet the price of gas, which is linked to oil, is going up 17 per cent.
This used to be a country which thrived on an abundance of low-cost energy. Now virtually every consumer and every business is shackled by spiralling energy prices.
There was ominous news in The Age this week. “The number of homes having gas and electricity disconnected has hit staggering levels, with more than 58,000 disconnections in one year.”
About 34,000 homes had their electricity cut off and there were more than 24,000 who had their gas cut off. There is a vicious circle in this, because the fewer people there are on the grid the more the networks charge each customer to recoup their costs.
And charge they do. Even as inflation has ebbed in recent years, and even as actual demand has receded too, the networks have kept pushing regulators for their 10 per cent returns.
The network operators get a “regulated return” on the size of their asset base. The more they spend on networks, the more they earn, and the more their executives are paid. Once the regulator ticks off on it, it all goes on our power bills.
Ironically, the most egregious gold-plating was afoot when demand for electricity was falling. The same appears to be happening today in gas.
For many years the networks have been able to justify their overspending on the grounds that demand for electricity would rise.
The body responsible for producing these forecasts is the Australian Electricity Market Operator (AEMO) and the man responsible for exposing the fallacy of rising demand and exuberant forecasts was analyst-turned-farmer Bruce Robertson.
Robertson has crunched some numbers for us which demonstrate the paradox that, just as in electricity, AEMO has been forced to scale back its gas forecasts.
“Their forecasts are consistently way too high,” he says. “They simply fail to take account of that most blunt economic instrument: price. This has led to the situation where in gas, in just the last three years, the 2024 AEMO forecasts have been downgraded by 55 per cent.”
According to the National Gas Forecasting report:
“Residential and commercial consumption is forecast to increase at an average annual rate of 1.1 per cent, driven by new gas connections despite average use per connection continuing to decline.”
Rack this “new gas connections” notion up against the swathe of gas disconnections cited in The Age this week.
Still joining the dots – an exercise which points to a conspiracy by industry to stiff gas consumers – there was another piece of salient news out recently.
In this newspaper Brian Robins quoted departing AGL chief Michael Fraser letting slip that there was still a large volume of uncontracted gas sitting with Esso and BHP in the Bass Strait. “We need to contract or get more gas from Bass Strait,” Fraser said.
The gas lobby has been running the line, talking about a “cliff” in gas supply. Unless new coal seam gas projects were urgently bought on the east coast would literally run out of gas. This scare campaign has been the impetus for the dramatic rise in gas prices.
Yet there is no hard evidence for it, because the gas cartel does not reveal even to the government how much there is in the way of gas reserves or what is actually contracted and at what price.
It is no secret though that, despite Australia’s enormous reserves, prices have been driven up by the rush to export the stuff to Asia. Local consumers are being forced to pay international prices and the producers have diverted supply to the Gladstone plants to be turned into LNG and shipped offshore.
That, too, is now unravelling. Credit Suisse sallied forth with a report this week which pointed out gas prices had halved, in line with plunging oil, and that the Gladstone LNG projects were in financial disarray.
Meanwhile, Canberra is contemplating buckling to pressure from the North West Shelf producers on the other side of the country to build an expensive pipeline so they can pipe their gas to Queensland to ship overseas.
This proposal is being dressed up as the answer to the crisis in east coast domestic demand. The problem for consumers is that they will be funding it. Just as in electricity, the distributors effectively claim back their infrastructure costs by passing the cost on to consumers via their energy bills.
Joining the dots once again, even though there is no public information on reserves, the rising prices have delivered industry the rationale for developing environmentally risky CSG projects.
These must surely be in doubt now that the price of wholesale gas has halved. The cost of production at AGL’s Gloucester project, for instance, is now above the price of gas.
Citi research also emerged with a report this week which posited that such was the community opposition that it was “not worth risking AGL’s brand for a Gloucester development”.