Solutions to the ‘Edge of Darkness’

“Much that passes for idealism
is disguised lust for power”
– Bertrand Russell

Global Energy Crisis

Energy crisis in coal states 2022

A tipping point to the ‘Edge of Darkness’ has been reached, yet again. It was back in the early 90s when new Labor’s managers of capitalism were in power that the push for the privatisation of the electricity system was still running hot. In South Australia and Victoria; and, yes, in the most coal dependent states, Queensland & NSW. No party of the Right, Centre or Left has stepped forward with a viable solution. For the most part, the professional class bought the line pushed by the Chicago Boys, PRIVATISE. When Labor lost power briefly in the mid 1990s management moved to South Australia to privatise the electricity system, something from which it is yet to recover in that state.

Meanwhile in the West, a Labor government is shutting down publicly owned coal fired power stations. It has now become dependent on Exxon gas fields offshore and roof-top solar. Privatisation via the back door.  There is one minor concession to now privately owned resources, Exxon must not ship all the gas from Gorgon gas project off the north-west coast. It must supply 15% to the people of Western Australia. Exxon Executives put in an ambit claim for “every molecule of gas” to be shipped offshore. Perhaps they knew no Premier could wear that so when Alan Carpenter said a firm no they offered him 15% of the gas back. Both government and media spun it as a masterstroke by the Premier. They forget that Alan Carpenter was writing Exxon a blank cheque in profits when future energy crises came along. That was in the early 2000s. Fast forward to 2022, Exxon and big fossil fuel companies are making a motza. In fact they are one of the few transnationals not to fall on global markets this week in a meltdown over an inflationary spiral like the 1970s. So modern managers of capitalism who recently lined up for a federal election, Labor and Liberal, have made the world’s biggest polluters heroes of the market yet again.

I’ve been having a quick read (and listened to) the numerous op eds about the current energy crisis. The Australia Institute says that the electricity crisis has been produced by the export of Australia’s gas, thus blaming the short supply and high price of local gas used for electricity generation. They also say the war in Ukraine features in the crisis. The institute’s solution is to tax the gas producers and move more quickly to renewables.

No mention of reversing the failed neoliberal experiment of privatization of energy industries. No, the pundits want to re-regulate the market system, they reckon they can manage capitalism better than the last lot. Well good luck to them on that one … they will have plenty of push back from the global gas oligarchs. Take Woodside Petroleum Ltd, the major exporter of Australia’s natural gas. Woodside is 64% owned by United States investors. It is the market that determines what percentage of Australia’s natural gas goes to domestic use and what percentage is exported (see Foreign control and ownership of Australia’s natural gas brings us economic hardship by Bevan Ramsden). The government places a cap on the price of gas in Australia and the Australian Energy Market Operator (AEMO) has the power to order producers to feed more electricity into the grid.

The pundits’ solutions do not tackle the underlying problems and flaws in liberalism, a dependence on market capitalism created a long time ago in Australia long before the formation of the Liberal Party. In 1944 Sir Robert Menzies formed a modern Liberal Party which, slowly over time, allowed the market to control essential services like energy, water and housing. The Australian Labor Party was complicit; but then, it was never a socialist party like Labour in Britain. Australian Labor practice their own brand of liberalism. Of course the market does not care about climate change unless it can profit by it.

How come WA Labor premiers are smarter than the rest? by Ian Verrender; Federal and state government roles in gas crisis by Phillip Coorey in the AFR.

  1. ABC editor Ian Verrender says: “After just a fortnight in office, the Albanese government has been confronted with a crisis…” Hardly just confronted, wasn’t it the Labor Party at state and federal level that contributed to the energy crisis by supporting coal and gas particularly in Queensland and New South Wales?
  2. Can Verrender really lay the blame (even partly) for the energy crisis at Putin’s feet, especially when Germany has been buying so much gas from Russia?
  3. How can the ABC really say China, a nation ‘has waged a brutal trade war on Australia’ when China is our major trading partner, accounts for 30% of our (two-way) international trade and our exports to China have increased by over 20% in the past year?
  4. The ABC needs to do more fact checking and less anti-China rhetoric.
  5. As for the statement that China may be seeking ‘military domination in the South Pacific’ … where is the evidence for that when the US dominates the Pacific with bases right around the Pacific rim including Guam, Japan, South Korea, Hawaii, Philippines and Australia?
  6. If you watch the ABC you could be forgiven for thinking it is Penny Wong that wants to dominate the South Pacific with her diplomatic offensive in her first two weeks as Foreign Minister.

So I suggest people read the material below and elsewhere with a critical eye. The market has a distinct impact on our media including our public broadcaster, the ABC.

Ian Curr Ed.
13 June 2022

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How come WA Labor premiers are smarter than the rest?

There’s a fine line between acting in haste and being decisive.  After just a fortnight in office, the Albanese government has been confronted with a crisis that has been a decade and a half in the making.  The bitter irony of it all is that, when it comes to energy, Australia is one of the best endowed nations on earth.

It boasts huge deposits of high-grade fossil fuels, including one of the largest supplies of natural gas, and an environment and landscape that is ideal for the new world of renewable energy required to power the globe.  And yet, here we are, faced with a critical failure in energy and electricity supplies that threatens to wreak havoc on the economy, shut down major manufacturing industries and cause a potential spike in both unemployment and inflation.

On a macro level, the obvious culprit — at least in recent months — has been Vladimir Putin and his reckless disregard for humanity with the invasion of Ukraine, which, as a side effect, has thrown global energy markets into chaos.  But we largely have ourselves to blame for the current predicament.

First, a near 20-year battle over the science of climate — primarily waged by the Coalition for political purposes — resulted in a critical shortage of investment in energy generation.  That has left us reliant upon an ageing and unreliable fleet of coal-fired generators that spew huge amounts of carbon into the atmosphere and frequently break down. 

And second, we have allowed a cartel of large global energy companies – many of which specialise in tax avoidance – to control our natural gas supplies, dictating terms and price on the Australian east coast.  Both major parties are to blame for that.

A significant portion of that gas now is being diverted towards China, a nation that for the past three years has waged a brutal trade war on Australia and which now is vying for diplomatic and potentially military domination in the South Pacific.  The rest mostly goes to Japan and South Korea.  Most of that exported gas is tied down by inflexible long-term contracts. But more than a third of the exports are sold under flexible short-term and spot contracts.  With global gas prices soaring, that’s delivering windfall gains to our gas exporters while inflicting enormous pain on Australian industry and households.

In the meantime, much of the hot air over gas shortages is highly misleading.  Australia doesn’t have a gas shortage. It’s just that, in the east, at least, we’ve allowed most of it to be sent offshore.

WA Labor premier called Exxon’s bluff

Back in 2006, a contingent of executives from one of the world’s biggest energy companies, Exxon, flew into Perth for a showdown with then Labor WA Premier Alan Carpenter over the huge Gorgon gas project off the north-west coast.  While federal politicians were cosying up behind the multinational, local manufacturers were deeply uneasy about the potential for gas shortages and price spikes.  Carpenter’s solution? He insisted that 15 percent of any gas from the new project be reserved for the domestic market.

The Exxon team was livid and delivered an ultimatum. Unless “every molecule of gas” was available for export, they would walk away from the massive project.  Carpenter called their bluff. He thanked them for coming and all the effort and investment they had made.

But, he said, if that was their position, then regrettably, the project was dead and there was nothing left to discuss.  Less than 24 hour later, a more accommodative Exxon executive requested another meeting.  Overnight, he said, they had re-crunched the numbers and they now were confident they could make the project work with the domestic requirements.

The result is that in Western Australia, the sudden spike in global gas prices has barely registered.  Gas is available at around $6.50 a gigajoule.  Compare that to the east coast where the Australian Energy Market Operator last week was forced to cap gas prices at $40 a gigajoule after spot and forward markets sent prices into orbit, with $383 a gigajoule recorded on Monday in Melbourne and reports of up to $800 the next day.

For the first time, the regulator triggered the Gas Supply Guarantee Mechanism, citing a “threat to system security” as a result of insufficient gas supply to meet demand.

Real cause of crisis

Once cheap and plentiful on the east coast, gas is a primary source of fuel in manufacturing everything from steel, glass, paper, plastics and fertilisers to food.  While many big firms have medium- and long-term contracts, a large number also rely upon short-term deals and spot prices for extra supply, sending their production costs soaring and threatening their viability.  Unlike their WA counterparts, east coast state governments gave local and multinational energy firms carte blanche to export as much as they’d like.

The real cause for the crisis, however, relates to a catastrophic blunder dating back more than a decade during the Queensland coal seam gas boom.  The energy giants over-estimated the amount of gas in the ground and contracted to sell more gas offshore than they could source.  To cover the shortage, they since have plundered local gas supplies, pushing domestic prices higher.  Their foreign customers now enjoy much cheaper Australian gas than Australians.

Turnbull’s gas crisis redux

This isn’t the first time we’ve faced a gas crisis. In 2017, then Prime Minister Malcolm Turnbull was forced to bring the gas exporters to heel.  Australia had just overtaken Qatar as the world’s biggest exporter of Liquefied Natural Gas. But the domestic market was facing shortfalls as the exporters squeezed supplies to meet their offshore commitments.

As ridiculous as it sounds, it was cheaper to buy Australian gas offshore, ship it all the way back home and reconvert it from liquid to gas, than to buy it on the local market.  In response, Turnbull created the Australian Domestic Gas Security Mechanism — a strategy designed to limit exports in the event of a domestic shortage.  While it’s never been triggered, its creation and the threat it may be used, restrained some of the worst excesses of the exporters.  For a while at least.

Two local energy giants, Santos and Origin, have major interests in two of the three gas export terminals in Gladstone while AGL has supplied gas for export.  Global giant Shell controls the third export terminal.  In each of the three projects, there were problems extracting gas from the new Queensland fields.

Santos, in particular, had difficulty meeting its export commitments. That situation has steadily worsened as the exporters continue to write down the potential reserves in their new gas fields.  And while a federal inquiry in 2019 found the Turnbull government’s gas mechanism was working well, the truth is that our LNG exporters continue to siphon east coast gas supplies to supply offshore markets.

Here’s an extract from a speech by Australian Competition and Consumer Commissioner Anna Brakey in March, shortly before everything turned pear-shaped.

“LNG producers have been supplying less and less gas into the domestic market for the last five years, and the downward trend is continuing,” she said.     “In 2022, the expected domestic supply from the LNG producers is about 50 percent less than the actual supply in 2017 and 2018.”  And she didn’t hold back in apportioning blame.  “It’s this rapid and significant reduction in domestic supply from the LNG producers that’s contributed to the tight and uncertain conditions in our domestic market.

“And let’s be clear – this is at odds with what government was told before the LNG projects were developed.  Gas companies assured governments that there was sufficient supply and that domestic gas prices wouldn’t go up.”  The situation, she added, is only likely to deteriorate in the next few years.

So, what should the government do?

There are two possibilities. The obvious one is to limit east coast exports, particularly those going to China and especially those being diverted to capitalise on the current exorbitant spot prices.  The other is to hit the exporters with a tax that could be used to subsidise domestic industries and households as Boris Johnson’s conservative government in the UK has just done.  Both actions will elicit cries of foul play from the energy giants, sovereign risk from export controls and threats to walk away from new projects over a tax.  But there is a greater sovereign risk in allowing one industry to cripple others and damage the broader economy

To give an idea of just how lucrative the current market is for the exporters, Origin Energy last week confessed that it once again had been hit by shutdowns at its coal fired electricity generators, sending its shares plummeting 14 percent.  But the pain at least was partially offset by its gas business.  Origin owns 27.5 percent of one of the three big export terminals on Curtis Island off Gladstone. And the windfall gains would be delivering an extra $300 million than previously expected this year, taking its total annual take from the project to $1.4 billion.

Multiply those numbers by a little under four to get an idea of the total extra returns the energy giants in the APLNG project will reap this year. Then consider the two rival projects and you start to build a picture of just how much money is involved.

Gas was supposed to be the transition fuel as we weaned ourselves off coal and into a renewable energy future.  In addition to manufacturing, it is a key element in determining electricity prices and without swift action, east coast energy bills are likely to soar, feed into inflation and further pressure interest rates.

By ABC business editor Ian Verrender

12 June 2022

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Federal and state government roles in gas crisis

Phillip Coorey AFR 10June22 (600w)

Malcolm Turnbull’s gas trigger was effectively a consequence of the Rudd-Gillard Labor government – with the support of the Coalition opposition – signing off on the massive gas export licences in Queensland without any requirement that some gas be set aside for domestic use.  “Interventions such as reservation policies to force price or supply outcomes are more likely to impede than promote supply,” the then resources and energy minister, Martin Ferguson, said in 2012 as his free-market approach began to founder.

Ferguson’s ultimate misjudgment was due in large part to a failure to anticipate the pressures on gas caused by climate change action, and because of the Victorian and NSW state governments placing bans, or effective bans, on the development of any more onshore gas.

The NSW government ran a deliberate go-slow on the controversial Narrabri coal seam gas reserve, which was understandable given the unpopularity and questionable environmental effects of coal seam gas. It even united Alan Jones and the Greens.  Less defensible was the Victorians slapping a moratorium on any exploration or development of conventional onshore gas.

That moratorium only recently expired and Alinta chief executive Jeff Dimery didn’t miss this week when he gave Premier Dan Andrews a piece of his mind.  More so after Andrews admitted more gas was needed, and his government put on hold until after the state election in November its plan to phase out the use of gas as part of its emissions reduction efforts.

“Here in Victoria, the state government put a moratorium on gas exploration and production, and now we don’t have enough gas.  You don’t realise that the day the decision is made,” Dimery said.“It’s as we deplete existing resources and don’t bring on new resources that you find yourself in this situation.”

Ferguson was supported by the Coalition in his belief that the domestic supply problem would be addressed by opening up more gas fields.  In a speech to business in 2012, opposition spokesman Ian Macfarlane began by putting his mouth to the microphone and making a loud sucking noise. As startled audience members looked up from their beef medallions, Macfarlane said something along the lines of “that’s the sound of all your gas being sucked up to Gladstone for export so you better start developing your own reserves quick smart”.

Upon coming to power and running smack bang into the energy crisis, Labor looked spooked. It was hard not to suspect the new government was being snowed by the gas companies. There was no point in pulling the gas trigger, or even threatening to, said Energy Minister Chris Bowen and Resources Minister Madeleine King, because it would not result in any action until January 1.

Labor also contended more gas could not be sent south, because the pipeline was already full.  The gas companies said so.  This was rejected on Wednesday by the Australian Pipelines and Gas Association, which said the South West Queensland Pipeline had been well below capacity for almost every day of the past month, and that “looking further back, it is rare to find a day this year on which the pipeline is operating at full capacity”.

By the end of the week, Bowen and King had begun to find their line and length. They announced plans to toughen the trigger within weeks, so that if it were pulled, it would work more or less straight away.  It was an announcement designed to “concentrate the mind” in the industry.  Whether it’s the budget, which is a whole other mess, or energy, it’s a steep learning curve for the new government.  Certainly, there is no honeymoon.

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Oasis – Gas Panic! (album version) (6:16)



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