Australian factories are at risk of shutting down and sacking workers as the nation’s gas exporters starve local customers in favour of overseas clients, according to a dire warning from the competition watchdog that clears the way for a gas crackdown.
The Australian Competition & Consumer Commission slammed the three gas giants in a clear sign to Malcolm Turnbull to impose the extraordinary export mechanism in order to guarantee supplies to Australian manufacturers and power stations and ease pressure on power prices.
“The federal government may be faced with a choice of pulling a trigger on the mechanism on the one hand or seeing factories closed and jobs lost,” ACCC chairman Rod Sims said.
Scott Morrison will receive formal advice on the crisis within weeks amid a wider government debate on energy policy, with Tony Abbott applying more pressure yesterday to prevent the government embracing a clean energy target that favours renewable power.
The Prime Minister vowed to act on the gas shortage and stepped up his support for a new coal-fired power station in Queensland, while insisting the Coalition was “absolutely of one mind” on energy despite Mr Abbott’s implied threat to cross the floor of parliament.
Cabinet ministers are yet to decide the energy policy but Mr Turnbull emphasised the need to improve reliability and affordability, making no mention of a clean energy target or an increase in subsidies to renewable energy.
The Australian understands the government is considering a new framework to encourage investment in more power generation but this is not the clean energy target in the form recommended by Chief Scientist Alan Finkel in a report in June. Bill Shorten has demanded the government immediately “pull the trigger” on the gas export controls, which will force Origin Energy, Shell and Santos to supply more to the domestic market.
In a sign of the pressure on employers, Mr Sims said Bass Strait gas producers BHP and Esso were running reverse auctions to ration supplies, leaving some customers without energy despite their willingness to pay.
Mr Sims also blamed state governments for halting the development of new gas reserves, saying environmental concerns might justify some restrictions but not blanket bans — an apparent warning shot at the bans in Victoria, NSW and the Northern Territory.
The ACCC’s findings suggest there will need to be tight controls on gas exports from January 1, when the mechanism starts after the government gives the companies a chance to respond to its conclusions.
“Those who criticise consideration of the gas security mechanism need to understand all the options available right now. There are not many. This is a very, very bad place to be,” Mr Sims told the National Press Club. The Australian Petroleum Production and Exploration Association has warned against new controls, arguing that members such as Santos are putting more gas into the domestic market.
Mr Sims said it was “ puzzling” and “baffling” that the three big exporters, which ship their liquefied natural gas from Gladstone in central Queensland, sold excess gas on the international spot market when they could have supplied Australian customers.
He ruled out the idea of seeking divestiture powers over energy companies such as AGL, which is in a dispute with the federal government over whether it should sell or extend the life of its Liddell coal-fired power station. While the ACCC opposed AGL’s purchase of Liddell and the neighbouring Bayswater power station out of fears it would reduce competition, Mr Sims said the regulator could not “unscramble the egg”.
He played down the role of a clean energy target in dealing with the energy sector’s problems, saying it was “essentially a sustainability measure” rather than a solution to high prices. “We’re told we’ve got three issues to deal with: sustainability, reliability and affordability,” he said. “Basic economics says with three problems you need three different sets of solutions. Very much beware of silver bullets that are said to address all three.’’
ACCC findings show that electricity price rises are mainly due to network prices (41 per cent of the impact), then higher retail costs and margins (24 per cent), then generation costs (19 per cent) and green scheme costs (16 per cent).
Mr Sims also warned that a big effort to boost reliability would make electricity more expensive, while noting the way huge investments in networks had been passed on to customers in the past. “I would say weigh very carefully what you do to improve reliability because consumers will pay the bill for the steps you take,” he said. “Be very careful with new or enhanced ideas that incur costs that can be smeared across all electricity users. Also think carefully about new retail regulations — they can often have unintended consequences.
“Fourth, and closely linked, realise that moves to re-regulate electricity prices will see many consumers pay more — sometimes a lot more than they pay now — and may see the innovation we need not happen.”
Mr Sims praised a government move to scrap the ability of energy retailers to seek “limited merits review” to have a better chance of imposing price rises.