Unlocking Our Resources
It’s easy to identify problems but much more difficult to provide a sensible solution. Politics seems to fuel the grievance industry with constant demands that the government do something about myriad problems. Often, these problems have little or nothing to do with the government. They are likely the product of imprudent personal or corporate decision making where the result isn’t as hoped.
Those who fail to insure their homes but demand government support to rebuild is one such example. Another is those who chase stupidly high investment returns that are ‘guaranteed’ then blame the government when they lose all their money.
The government isn’t there to protect the greedy or the lazy or the imprudent. It exists to provide the services we demand in a civil society, uphold the rule of law and defend the national interest.
It’s also a bit rich to expect government to protect us from bad decisions when it makes so many poor ones in itself.
Our electricity system is a case in point. Billions of wasted dollars in a futile attempt to stop climate change through expensive and unreliable renewables. The result has been the enrichment of the rent-seekers at our expense. It’s no coincidence that some of the biggest cheerleaders in the renewable energy space have made hundreds of millions in the process of selling us out.
As Paul Keating once said, ‘always back the horse called self-interest because at least you’ll know it’s trying!’. It’s the same with companies. They’ll do what they can to build wealth for their shareholders.
You can’t blame them for that but there are times when their self-interest acts against the national interest.
That’s where government needs to act in what might be best described as a facilitation role. Such a case exists in our domestic gas industry. Let me make this as clear as possible. East Coast Australia has a Gas and Electricity Crisis which will impact us all.
Right now, Australian consumers pay more for Australian gas consumed domestically than the Japanese pay for the same gas shipped all the way to Japan.
It doesn’t make sense until you consider how the system works.
Nations with limited natural resources look to obtain multi-decade agreements for raw materials to ensure supply. Singapore was a world leader in this space and secured 50-year gas and water contracts in the early years of the nation-state. Those deals were struck above the then market rates to ensure a deal could be done. Now those contract prices look very reasonable indeed.
The attractiveness for the supplying company is they have a government-guaranteed cash flow to count on for decades to come. This allows them to plan, borrow and invest with confidence.
It means they can also ‘bank’ resources for future use whilst maximising the profitability of existing developments, virtually guaranteeing prices don’t collapse due to oversupply.
That means new contracts are struck at higher prices because these same firms have locked up new undeveloped resource reservoirs.
This is a significant problem with respect to Australian East Coast gas prices. Solving it just takes some action by the government.
Let me explain.
There is a known 30 year supply of gas available in Queensland’s onshore Bowen Basin. Much of that resource is ‘owned’ by a joint venture between two multi-national firms known as Arrow Energy. Arrow Energy is a 50/50 joint venture between Shell and PetroChina, two of the world’s largest gas companies.
The resource is located relatively close to existing pipelines and road transport routes. The gas could easily be tapped and made available to the market within a year or two.
Except there is no incentive for Arrow to exploit the resource now. Instead, they can sit on this gas until the time is right to back-fill their existing LNG plant at Gladstone. Interestingly this scenario is exactly what we see currently occurring in Western Australia where large volumes of gas were discovered in the 1970s and have been “warehoused” by the companies to backfill the large North West Shelf LNG trains 50 years after discovery!!
Their multi-national shareholders already have high capex investments to pay off globally and it is in their interests to prioritise those other business operations.
These companies also know that a massive gas supply, like that available in the Bowen, has the potential to reduce the spot price of gas within Asia.
A reduction in gas prices isn’t in the best interests of the company and as a result, we have a gas ‘shortage’ in East Coast Australia. It isn’t a real shortage but simply one that results in artificially high prices forcing us to pay too much for our own domestic supply.
Now it is clear that the directors of a multinational company won’t act to change such a circumstance unless they realise it is in their best interest to. The only voice that can speak with enough influence to make that happen is that of a sovereign nation.
And this is the role that only government can play.
If we truly want to reduce our domestic gas prices and make our electricity generation more affordable and predictable we need to increase the gas supply. This is also the view of the ACCC. If we want to receive billions of dollars in royalties and unleash resource-driven jobs and prosperity, we need to force the development of the Bowen Basin gas resource.
You might think that’s easier said than done but it could start with a frank conversation between our PM and a couple of the Head office corporate brass.
It might take some motivation in the form of legislation, holding costs or even an undeveloped resource ‘lock up’ tax to make it happen but a simple direct request could be enough. The carrot is always better than the stick.
However it can be done, it needs to be done.
Large foreign multinationals seem to believe they run governments rather than recognise they are effectively contractors for the Australian people and operate here by invitation only.
The Bowen Basin is a proven resource, it could be developed very quickly and would make a massive difference to the lives of all Australians.
Now surely, that’s a good solution to a critical problem. I wonder what the government has to say about it.