Posts Tagged ‘LNG’
we’re running out of gas on this topic
Jacinta: So we need to look at why high domestic energy costs come as a shock to Chinese arrivals here in Australia. It seems the essay we analysed last time took the view that we should be capitalising on high gas prices, getting top dollar for our gas exports, and exporting even more of the stuff, including increasing production as much as possible, and not capping the domestic price but somehow offsetting the cost to local consumers through the tax system. But it seems that Chinese consumers are getting it cheap.
Canto: Yes, it’s hard to make sense of it – how is it that gas producers/retailers are making windfall profits by selling LNG to China when the consumers there are paying much less for it than we are? Is it just the sheer quantity they’re sending offshore?
Jacinta: Well, we’re not economists, far from it, so it’s a battle for us to understand it all. But I’m reading an Aussie article from a little over a year ago that puts it bluntly:
Australia [has] gas. Loads and loads of it. Far more than we could ever possibly need. It comes out of the ground at $1GJ all across QLD and SA. But then what happens to it is beyond all hope and reason. Three-quarters of it is shipped to China as LNG at $31GJ, $4GJ cheaper than it is sold locally.
That doesn’t seem to me to be that much cheaper, but the author, David Llewellyn-Smith, seems to be claiming that the cost of bringing the gas out of the ground is $1 per gigajoule, but it’s sold, presumably after much processing, as LNG at $31 per gigajoule in China. And sold here at $35 per gigajoule. Or was. And that may not mean the cost to the household consumer. I’ve been trying to find out current domestic prices, but the economic gobbledegook is beyond me.
Canto: I’ve located our last gas bill – $344.64 for 91 days usage (i.e quarterly). The usage is measured in megajoules, and a gigajoule is 1000 megajoules. Our average daily usage for the period May through July was 52.24 MJ. That’s about 4754 MJ or, say 4.75GJ used in the period. That means we’re paying around $72.50 per gigajoule. Something very wrong here, I give up. The average quarterly gas bill in South Australia is currently $218, so we’re way over. I presume that’s per domestic household. Average daily usage over winter in SA was 21.64MJ, and we’re way over that. We have only gas hot water, and we rarely ever use the gas stove. I cook on a small electric oven we bought – not induction, sadly.
Jacinta: They may be adding other costs on to the basic usage costs, but our high usage is extremely surprising, and it won’t necessarily be less in the warmer months, because we’re only using the gas for showering and washing dishes, not for heating. That means we’re likely spending nearly $1400 annually for gas. Can we change the subject now?
Canto: Well, no, we need to change our usage, not the subject. That’s assuming this usage number is reliable, and I have to be sceptical of that. Anyway, I think we can dispense with gas usage totally, at least I can. For example, washing dishes via electricity (boiling the electric kettle), and body-washing also via electricity (same system) and doing without showering. That would reduce my gas usage to zero.
Jacinta: Okay, good luck with that. We still haven’t really worked out why the Chinese are paying less for gas, or maybe for energy in general, than we are.
Canto: Well, economics bores me witless, but here we go. In 2021 China became the world’s largest gas importer, surpassing Japan. What this means for the cost to the domestic consumer I’m not sure. There has been a decline in commodity prices, including gas, in recent months apparently, but I suspect that low prices to the consumer have little to do with that. I suspect it has to do with the deviancies of the Chinese Testosterone Party – which I blame for everything in that country.
Jacinta: Haha, but is blame the word? How have they managed to shield their people from the costs we suffer under?
Canto: Anyway, our way out is to get our electric dishwasher fixed, stop using the gas hot water system, and switch off the gas tap.
Jacinta: Yes, and then we can get back to talking about bonobos and such…. Please!
References
What is the average (MJ) cost of gas in Australia?
more on gas prices in Australia, sort of
Coal, oil and gas are called fossil fuels, because they are mostly made of the fossil remains of beings from long ago. The chemical energy within them is a kind of stored sunlight originally accumulated by ancient plants. Our civilization runs by burning the remains of humble creatures who inhabited the Earth hundreds of millions of years before the first humans came on the scene. Like some ghastly cannibal cult, we subsist on the dead bodies of our ancestors and distant relatives.
Carl Sagan
Canto: So during an English conversation group that I’m for the moment in charge of, at our local community centre, we got onto the topic of how Australia finances itself, trade and business-wise. I made the claim that manufacturing in Australia has largely died (based on the fact that I’ve worked in or for six factories in my youth and not-so-youth, – Simpson-Pope, ATCO Structures, Wilkins Servis, Tubemakers of Australia, Ellis Wireworks and Griffin Press – none of which still exist, at least not in the same locations). I also said that our economy is now based largely on the exporting of coal, gas and other mineral resources. As always, I wasn’t sure if I was talking out of my arse, so it’s time for research… But not just about that. I went on to say, apropos of our plentiful gas resources, that we export most of the gas, which is why we pay such a high price for gas domestically. This led a Chinese member of the group to ask – how come? According to him, gas, and energy bills generally, come to much less in China than they do here. So what gives? That’s what we’re going to take a look at today.
Jacinta: Yes we’ve written about this before, in November last year, but I’m happy to revisit the issue, perhaps more thoroughly.
Canto: Well, since that piece was written, there’s been little in the news about the issue, it seems. Except that, in December:
… the Australian government passed a law imposing a price cap on domestic natural gas for 12 months, with the possibility of the cap becoming permanent after that.
Which I suppose is quite important, though it was capped at a high price, presumably compared to Chinese domestic prices.
Jacinta: Well you’ve just quoted from a piece by a writer from the Baker Institute for Public Policy, based at Rice University, a private research institute based in Houston, Texas. Rather surprising to see such a piece dealing with the Australian domestic market, from the other side of the world, so to speak. And it goes into great detail about the economics of price capping, which the author, Kelly Neill, describes as ‘poor policy’, at least in this instance.
Canto: Could they have an ideological bent? What about the poor consumer? I mean the consumer who is poor.
Jacinta: I’ve just read Neill’s bio, and she’s based in Australia:
… at the University of Sydney School of Economics. Her research has focused on competition in natural gas markets, particularly in Australia. She has studied how electricity and gas markets interact, vertical integration of gas retailing and shipping, and the consequences of restricting exports of liquefied natural gas. She is also interested in electricity reliability.
Canto: Sounds impressive. In fact I feel quite intimidated now. I mean, ‘vertical integration of gas retailing and shipping’ – what could that possibly mean?
Jacinta: It’s the opposite of horizontal integration, obviously. Pay attention mate. Seriously, it’s ‘the combination in one firm of two or more stages of production normally operated by separate firms’. Presumably gas retailing and shipping in this case. And Neill’s argument is complex, it seems – it’s a long article, and its complexity is beyond our pay grade (which is zero of course). It’s the kind of economics article that’s designed to be read by other economists, and, after a quick run-through, I see little or no mention of windfall profits by gas companies, the cost to residential consumers, or renewable energy. It does discuss future investment, and she certainly appears to believe that increased development of our gas resources is a very good thing, as if she’s never heard of ‘the Big Switch’ to electricity developed from renewables.
Canto: Yes it’s odd – we’ve mentioned how Chinese newcomers to Australia are wondering why domestic energy costs are so much higher here than in China. Neill focusses, though, on the big consumers:
the intention of the natural gas price cap is to provide relief to industrial gas users
That was news to me – I thought the government wanted to provide relief to impoverished types like you and me. But perhaps they want both. And she also expresses concern that caps will reduce the incentive to produce more fossil fuels. So she certainly has a business as usual attitude to such production, while I’m trying my darnedest to get our Housing Association to put solar panels on our roofs, and to get our gas cooker and hot water system switched to electric. And, as a consumer of science mags and podcasts, all I hear from them is how we must wean ourselves from gas, oil and coal. It seems that economists think differently.
Jacinta: She also writes things that slightly surprise me:
Australians own the country’s natural resources (through their governments), and as such are entitled to benefit from their extraction.
Which sounds good, but I thought these natural resources were owned by the companies that extracted them, via mining and such. Sort of like manufacturing. General Motors makes money from cars, BP makes money from oil. And sometimes these companies receive subsidies from government, to help maintain them, because they’re good for the economy, not only because they provide relatively cheap cars, or oil, for the country, but because that business gets to export the surplus (helped in some way by government) in exchange for goods that we need but can’t easily supply ourselves.
Canto: Yeah we’re not really very good at understanding this are we? I suppose the globalisation of the economy is why we don’t do manufacturing any more. The labour costs too much? Better to use cheap overseas labour and then import? And ratchet up the gig economy so that everybody has just enough work to not count in the unemployment stats? I’m sure the coffee and croissants market is booming. But getting back to gas, my understanding is that coal is rated the worst of the fossil fuels – not only for carbon emissions but most dangerous working conditions. And then it’s oil and then gas. So maybe Neill is right to discount the negatives, at least for the foreseeable.
Jacinta: According to the IPCC, in 2018, 89% of global CO2 emissions came from ‘fossil fuels and industry’, which is kinda vague, tacking on ‘industry’ like that. I mean, can transportation be counted as industry? And according to ClientEarth, natural gas accounts for a fifth of the world’s carbon emissions. By no means insignificant.
Canto: But I’m interested in learning a bit about economic-speak, inter alia, through analysing Neill’s essay. And after all that, we’ll try to find out why Chinese people are paying less for their domestic energy than we are. So here’s a quote from early in the essay which seems to sum up her position:
Forcing companies to sell on the domestic market at a lower price reduces the value of Australia’s gas resources — an opportunity cost that ultimately does more harm than good. Instead, it would be better to maximize the value of the resource and then choose a tax policy that does not affect investment.
The term ‘opportunity cost’ is economics jargon, meaning ‘the loss of other alternatives when one alternative is chosen’, but this idea of maximising the value of the resource would surely be music to the ears of the multi-millionaire gas company owners. And clearly she’s in favour of investing in gas. If I found out that my super fund had been investing in gas I’d be effing furious.
Jacinta: I’m sure they are – it’s a transitional fuel dontcha know. And there’s no doubt that Neill is in favour of our exploiting this resource. Look at this key paragraph:
The influence of the export price in the domestic market has increased over time as gas supply in southern states has declined. State governments in New South Wales, Victoria and South Australia share responsibility for this, with bans on new developments contributing to the decline in gas production. If produced, southern gas could be sold at a discount to the LNG export price, because southern gas would be further from the export plants and closer to demand centers. Indeed, if gas supply was large enough that LNG export plants were at capacity, the domestic price would again de-couple from the export price.
As a South Australian, taking pride in our leading the country in renewables, I’m somewhat nonplussed/gobsmacked at this slap. So I should read the whole piece to see if she has any interest in or knowledge about the existential global warming crisis that is currently enveloping us, and the contribution of LNG and other fossil fuels to this crisis. But I’m not hopeful.
Canto: So next she’s on about supply issues:
Global LNG supply is inherently inflexible, because increasing liquefaction capacity is costly and slow, and the market remains illiquid, particularly in Asia.[5] Investors know that small increases in demand can create large increases in price. (The converse is also true, small declines in demand create large price falls.)
Whatever that means.
Jacinta: Yes, I’m not sure if she means that the gas remains illiquid. Gas is gas after all, not liquid. But there’s also the term ‘liquid assets’ in economics…
Canto: Yes I hadn’t noticed that. ‘Liquid Natural Gas’ is essentially self-contradictory…
Jacinta: It’s liquified natural gas. And ‘liquefaction capacity’ means ‘the capacity of an LNG facility, measured in terajoules per day, to liquefy natural gas to produce LNG’. So Neill is pointing out, I think, that there’s a market inflexibility because it’s costly to liquify gas, especially in Asia. But saying that the market remains illiquid does create a bit of confusion. But I wonder what this economist thinks of Australia’s RenewEconomy. I notice they have an essay posted a few days ago from Giles Parkinson, an indefatigable RenewEconomy journalist, entitled ‘It’s time to get SwitchedOn and kick gas out of the system: Our future depends on it‘ – SwitchedOn referring to a series about electrification they’re publishing….
Canto: But I think, to be fair, Neill is clearly aware that our economy is currently highly reliant on our gas exports, just as Norway’s economy is highly reliant on its fossil fuel exports.
Jacinta: Good point. Could we kick gas out of the domestic system while exporting endless terajoules of the stuff? Isn’t that what Norway is doing? They get most of their domestic energy from hydro.
Canto: Seems a bit hypocritical I suppose, and here in South Australia we don’t have hydro, but we’ve worked hard to get more of our energy from renewables. We’re still reliant on gas for almost half our energy, but wind and solar together make up the rest – more than half. That’s only going to increase. I’ve now read the whole of Neill’s essay, and she’s made absolutely no mention of renewables. Maybe she’s been living under a rock for the past 30 years, but most likely it’s deliberate – which doesn’t mean she’s anti. She might just have decided to limit her focus on gas.
Jacinta: Well, maybe so, but she’s clearly in favour of more investment in gas, and encouraging more exploration of the stuff. That fact that she ‘blames’ South Australia and other states for not producing more of this fossil fuel, which the IPCC is insisting we should not be producing if we’re to avoid catastrophic global warming, is evidence enough of her contempt for the science, surely.
Canto: But I’ve seen her picture and she looks so cute…
Jacinta: […]
Canto: Anyway we didn’t get round to why energy costs more here, domestically, than in China. Next time perhaps.
References
https://www.bakerinstitute.org/research/why-natural-gas-price-caps-australia-are-poor-policy
It’s time to get SwitchedOn and kick gas out of the system: Our future depends on it
an interminable conversation 5: the RET, Mike Cannon-Brookes, and Big Gas issues
Jacinta: So I’ve heard of this thing called the Renewable Energy Target (RET) – in fact I first heard about it years ago but I’ve paid little attention. Tell me more.
Canto: There’s a government website, the Clean Energy Regulator site, which purports to explain everything. Here’s the briefest statement about it:
The Renewable Energy Target is an Australian Government scheme designed to reduce emissions of greenhouse gases in the electricity sector and encourage the additional generation of electricity from sustainable and renewable sources.
Of course they have much more to say, in positive-speak, about it all, but a wee footnote at the bottom caught my attention:
In June 2015, the Australian Parliament passed the Renewable Energy (Electricity) Amendment Bill 2015. As part of the amendment bill, the Large-scale Renewable Energy Target was reduced from 41 000 GWh to 33 000 GWh in 2020 with interim and post-2020 targets adjusted accordingly.
I believe the ultra-conservative Tony Abbott was PM in 2015, and the Fossils were calling the shots, as Marian Wilkinson’s The Carbon Club relates. Anyway, it’s a certificate system based on megawatt hours of power generated, and the rather pathetic target was apparently reached, based on approvals of large solar and wind installations, in the second half of 2019.
Jacinta: That’s something perhaps, but the IPCC wasn’t particularly impressed. The Clean Energy Council’s website, Ecogeneration, has boosted the achievement, describing the RET as ‘the most successful emissions reduction policy of all time for Australia’s electricity system’. But it hasn’t had any competition! And ominously, Kane Thornton, CEO of the Clean Energy Council, is quoted as saying ‘the industry doesn’t need new subsidies, we just need certainty’, etc etc, which contradicts everything I’ve heard from Saul Griffith, Mike Cannon-Brookes and others… we’ve been subsidising the fossil fuel industry forever, haven’t we? It’s rebuilding our manufacturing base that needs subsidising. Renewable energy has already become the cheaper option, but we have no EV manufacturing here and only one PV manufacturer.
Canto: Interesting Mike Cannon-Brookes interview in the Financial Review, which introduces the term ESG to me. This stands for Environmental, Social and Governance, perhaps in that order, as factors to be considered in any investment. Which all sounds v positive. And he’s very positive about ESG, which is a positive thing.
Jacinta: Yeah, apparently he’s a billionaire. How the fuck do people become billionaires? Why is it ever allowed?
Canto: Yeah, obviously it’s not just about working hard, like the Congolese in the diamond mines, and various slave populations over the centuries, whose only reward was death. Nature just ain’t fair. Herr Cannon-Brookes is co-founder of a company called Atlassian, which I’ve never heard of. Nor have I heard of their major products, such as Jiro and Trello, which are used by ‘teams’, but I don’t think they play soccer.
Jacinta: Sounds like they’re in the business of business, which is certainly none of our business.
Canto: Yeah, it’s probably all about digital environments. We’re about 40 years out of date. We need to stop reading books, paper is so 20th century.
Jacinta: Anyway, getting back to renewable energy …
Canto: Well this interview with Cannon-Brookes, he sounds pretty sincere, for a billionaire. They’re just people I suppose. If a bit weird. He’s very positive about renewables, and running his business that way, and pretty honest about the issues – like offloading the problem onto others, as he admits to having done, and facing that issue squarely. You know, like Australia exports coal and gas, and doesn’t take responsibility for the emissions. Like Norway.
Jacinta: They don’t have to take responsibility, the way the current system works. Apparently, as of July 2020, Australia became the world’s biggest gas (LNG) exporter, overtaking Qatar. That’s from the Climate Council. It’s hard to keep track of all these organisations. Anyway, Australia was exporting about 80 million tonnes of LNG per year two years ago. According to the latest, it was 77.7 MT (in 20-21 financial year). The article said it has ‘retained its crown’ as the world’s largest exporter. Shouldn’t that be a dunce’s cap?
Canto: So many people are late in getting with the program. By the way, China has taken over from Japan as our number one LNG buyer – adding to our problems with that fascist government. In any case the argument would be – and I’ve heard it stated in a public forum – that we owe our wealth as a nation to these exports, and by extension, to our trading relation with China. .
Jacinta: Well, it’s interesting that the price of gas is rising domestically. Presumably this has something to do with so much of our gas going offshore? And renewables, though growing, are hardly ready to fill the domestic energy gap, right?
Canto: So this is all new stuff to get my head around, but a ‘Bloomberg Green’ video linked below has it that the Australian Competition and Consumer Commission (ACCC) has produced an interim gas report, a forecast for 2023. It predicts that the supply of gas for next year will fall short of demand by about 56 petajoules – 3% of total demand. This doesn’t sound like much, but with rising gas prices… Anyway the ACCC is recommending that the federal government bring into force the ‘Australian Domestic Gas Security Mechanism’, pressuring LNG exporters to reserve some of those earmarked exports (70 to 75 percent of production) for the domestic market. Now, some 11% of those exports aren’t covered by long-term contracts – they’re available for those as bids for them, and there might be a few countries bidding, considering the global situation.
Jacinta: Hmmm, sounds like a seller’s market, with impoverished buyers, including domestic ones. So the idea is that the government can intervene to force gas exporters to sell some of their stuff here, with reduced profits?
Canto: Yes, but whether they do is a question. The video goes on to talk about Australia’s new emissions reduction target of 43% on 2005 levels by 2030, with the aim of net zero emissions by 2050. Interestingly, the Bloomberg economist says that while it’s good news to get clear targets after years of nothing much, the targets are still a bit weak. Most notably, only 3% of passenger vehicles sold last year were EVs, and with no manufacturing here in the foreseeable future, the chances of EVs reaching 89% of sales by 2030 – Labor’s target – are surely minuscule.
Jacinta: Yes, but all the other cars purchases would be overseas-made vehicles, wouldn’t they?
Canto: Hmmm, so there might have to be legislation to favour EV imports, as well as plenty of infrastructure… And a turnaround in public attitudes, which I don’t presently see.
Jacinta: Returning to gas, the Australia Institute, which appears to be a left-leaning public policy think tank, has a critique of our gas exporters in another, very brief, video. It just advises turning our backs on gas tout de suite. Forget reserving gas for the domestic market – which might involve something more or less in the form of a bribe to the exporters. Instead, electrify everything, of course. More pronto than pronto, to make up for a lost decade of relative inaction. They describe it as a gas export crisis, in which domestic prices are soaring because so much of our gas is going offshore. A win-win for the gas companies.
Canto: So, is this the situation? Gas companies are in the business of profit. They sell gas overseas, even at the expense of the domestic market, because they can, because they’re owned by private individuals, they can sell to the highest bidder. And If this means gas is scarce domestically, and in high demand, because we’ve become dependent on gas, we haven’t been weaned off it, the gas companies can make another killing on the domestic market? They’re holding us to ransom, so to speak?
Jacinta: Oil and gas companies in the US as well as in Australia are making huge profits currently, due to scarcities caused by war, embargoes and such…
Canto: The Australian Domestic Gas Security Mechanism was designed to ensure sufficient domestic supply, but it’s not very efficient, and the domestic supply target is too low. Some state governments, notably Western Australia, have a higher domestic reserve, but of course what we need is to switch to renewable-based electric as quickly as possible, to get out from under the control of the fossil fuel barons.
Jacinta: Are gas companies subsidised here?
Canto: Do koalas shit in the trees? Renew Economy has a scathing article about this, posted today. It describes companies like Santos recording super-massive-record profits this year, and the term ‘war profiteering’ is mentioned. This has also been at the expense of the domestic market. Here’s a quote:
Santos categorically stated its project would not affect the domestic market because it would not buy gas out of the domestic market. But that is exactly what it has done. Santos bought large volumes of gas out of the domestic market in the first half of 2022, forcing domestic prices above export prices in the last six months. These actions have generated super profits, gouged from domestic gas consumer and forcing up domestic electricity prices to unaffordable levels. Santos has broken its approval conditions and IEEFA calls on the government to cancel their export licence.
The IEEFA, for our info, is the Institute for Energy Economics and Financial Analysis. Bruce Robertson, who wrote the Renew Economy article, has a similar piece on the IEEFA website. The thing is, the domestic reserve could be raised, and made non-negotiable (it isn’t at present) without having much of an effect on these windfall profits. As it is, gas companies are largely ignoring existing reserve requirements. The ACCC has the capacity to prosecute but apparently has no intention of doing so. They’re also doing nothing to tackle these companies’ collusion re price-fixing and tax avoidance. There’s something rotten about all this. Clearly we’re not going to wean ourselves from gas as quickly as we should, but we certainly shouldn’t be pumping up and sending off ever more of the stuff.
Jacinta: Well, yes, considering that the aim is to electrify everything, and people are starting to get on board with this, that means no new gas fields, so what are these companies going to do with these massive extra profits, other than line the pockets of CEOs and their immediate underlings?
Canto: Well, there will still be offshore markets for the foreseeable, so keep on despairing. Two months ago, the Sydney Morning Herald ran an opinion piece by Tony Wood of the Grattan Institute, arguing for a ‘windfall profit tax’ considering that some importers are paying ‘more than four and up to 10 times the contract prices’. The Federal Treasurer, Jim Chalmers, isn’t interested. And so the rich get richer, for the time being….
References
https://www.cleanenergyregulator.gov.au/RET/About-the-Renewable-Energy-Target
Marian Wilkinson, The Carbon Club, 2020
What the frack? Australia overtakes Qatar as world’s largest gas exporter
Santos windfall: Australia is swimming in subsidised gas and we’re giving it away
https://ieefa.org/resources/why-government-must-break-eastern-australias-gas-cartel