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Devil in the detail in the Govt gas price cap, page-54

  1. RVR
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    AFR today (extract):
    Power fight: Short-circuiting projects won’t help

    ROBERT GOTTLIEBSEN
    • CHRIS BOWEN’S FRANKING CREDITS PROPOSAL WAS A KEY REASON WHY BILL SHORTEN WAS NOT ELECTED PRIME MINISTER IN 2019.
    Bowen is now Energy Minister, and is in the process of triggering a quiet unannounced partial gas capital investment strike in Australia. Both Victoria and NSW are set to be hit hard.
    In answer to questions I put to Exxon, the Bass Strait operator forecast lower gas production next year, which will hit Melbourne and Sydney industry and Melbourne households. Currently about half of Bass Strait gas goes to NSW.
    And, separately, the giant Qenos specialty polyethylene plant in Sydney is under threat.
    The repercussions from the capital strike are likely to become far worse in 2024 and 2025. Opposition leader Peter Dutton can’t believe his good fortune
    All the media publicity is about the temporary price cap but, on its own, if it was introduced with skill and negotiation, that would not have created the looming capital strike in gas development and exploration.
    Instead, Bowen has endangered the nation’s energy via three fundamental mistakes.
    First, he cast aside undertakings made by the government in its early days in relation to the energy market. That smashed trust.
    Second, he introduced a form of nationalisation that went far beyond a temporary price cap without any consultation whatsoever with the companies he was hitting. Prime Minister Albanese claims there was consultation, but the major companies are adamant no major corporate CEOs got to talk to the Energy Minister or the Prime Minister. When ministers introduces draconian measures without discussing what they are doing there is grave risk of miscalculation.
    Third, Bowen’s form of nationalisation without compensation has rarely been seen in advanced democracies.
    The Bowen legislation is an amendment to the Competition and Consumer act providing a mandatory code of conduct that includes:
    – Rules requiring a gas market participant (widely defined in way that could encompass retailers) to supply, or not to supply, gas in specified circumstances.
    – Rules on much gas is to be supplied; where and when gas is to be supplied; plus the terms of the agreement (including price) on which the gas is supplied The market code may also include rules requiring a gas market participant not to acquire gas in specified circumstances. There was also power to remove gas deposits from ‘recalcitrant’ (my term) companies.
    Any company that invests in an industry where the government has such draconian powers is greatly endangering its shareholders funds.
    That’s why the market has slashed energy companies share prices.
    The grand Australian energy plan is to support renewable projects with batteries, pumped hydro and similar facilities. But they are expensive to develop and given that coal is on the decline Australia is going to need gas to bridge the gap.
    Leaving aside the coal and gas price caps that receive the media attention, longer term, the government plans to fix a price for gas based on what it regards as a reasonable return.
    However, the draconian code means that price will be compulsory, arbitrary and almost certainly low.
    Helped by low gas prices, gas power stations will be very economic so gas demand maybe artificially boosted, while supply is curtailed by the capital strike.
    Prior to the Bowen measures, the energy regulator had warned Victoria and NSW that in Bass Strait, on the basis of current demand, there could be shortages during the 2023 winter and there will certainly be shortages around 2025-2026.
    Exxon in conjunction with its partner Woodside is developing two new smaller deposits, which are high-cost and capital-intensive, but intended to delay the shortages.
    I asked Exxon whether capital investment would be continued on the two deposits and received this chilling reply in writing:
    “Given the speculated unprecedented intervention in a free market, earlier last week the Gippsland Basin Joint Venture participants opted to reduce its investment cycle from 12 to six months for the first time in five decades.
    ………….
 
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