The carbon tax was a sideshow. Victoria is about to be hit by a real explosion in energy prices, and Victoria especially. In no other state do households rely as heavily on gas.
We have configured our homes, our offices and our businesses to run on gas because it used to be extraordinarily cheap. A byproduct of the extraction of oil from the Bass Strait it was virtually given away because it couldn’t be compressed for shipping or moved interstate by pipe.
Right up until 1998 Victoria’s gas pipeline went no further north than Wodonga. A mere two hours up the road Wagga Wagga got a completely different supply from Moomba, 1500 kilometres away in outback South Australia.
And then the pipelines linked.
Suddenly Victoria’s gas could be sold all along the east coast right up to Brisbane and eventually further north to Mount Isa and Gladstone. Victoria started paying eastern states prices. It’s about to happen again on a much larger scale.
This time instead of paying an eastern states price we will be paying a global price. Whereas the carbon tax pushed up gas prices 9 per cent (and is being removed) the shift to a world price will push up wholesale prices more than 100 per cent and keep them there.
Within months Gladstone will become the first port to send eastern states gas offshore. Each of its six liquefaction units will bottle as much gas as Victoria uses each year. They are meant to be fuelled from Queensland’s coal seam gas, but in case there’s not enough the owners have arranged to get gas from all sorts of places, including Victoria, using the network of pipes that already exists.
It will push up the eastern states wholesale price from around $4 a gigajoule to $9. Japan is said to be prepared to pay $18. It’ll do it because as soon as it is possible to sell gas overseas, gas producers will be able to demand the same price from local customers that they can get overseas (less the cost of processing and shipping). If their Australian customers don’t pay, they will sell it overseas, for the overseas price.
Each time an existing $4 contract comes up for renewal it’s being replaced with a $9 one (sometimes $11). Contracts typically last years, so they are not all being changed at once, but by 2016-17 the average wholesale price is expected to hit $9.
What are we hearing from our government? On Sunday the ABC’s Background Briefing unearthed a tape of Abbott speaking in Texas in January at an event hosted by Chevron, BHP Billiton and ConocoPhillips: “Australia will soon be the world’s number one exporter of liquefied natural gas,” he boasted. “Australia is the world’s largest exporter of black coal and we are the world’s third largest uranium producer.”
Industry Minister Ian Macfarlane told reporter Jess Hill that standing in the way of exports in order to hold back prices didn’t “make economic sense”.
“Gas is the last commodity to receive an international price,” he said. “The reality is that just as we have had an international price for oil for over four decades, gas is now being sold in Australia at a world price.”
But it isn’t all being sold at at the world price. By law in Western Australia 15 per cent of all the gas produced in that state has to stay in the state. Western Australia’s Liberal Premier Colin Barnett wants the law taken national. "Any other developed country in the world would be ensuring that their relative clean energy is preserved, or some part of it preserved,” he told Radio National.
He is right. The US, Canada and Egypt all have some sort of gas reservation policy. Yet here, notwithstanding the Coalition’s apparent obsession with cheap energy, it’s not on the agenda.
Retail gas prices will not double as a result of exports through Gladstone but they may increase by 30 per cent, many times what happened as a result of the carbon tax. The cost of wholesale gas makes up only 25 per cent of the retail charge.
Victorian households are not well placed to switch off gas. Victoria uses about 75 per cent of Australia’s household gas. Our homes have been built that way. I’ve an open mind about whether eastern Australia should reserve some of its gas for domestic use as does Western Australia. But the government doesn't. It’s closed down the debate and it's suddenly quiet about energy prices.