Yahoo Finance Australia's answer to inflation, dire interest rates and construction: 'Not complex'
A $6 levy on liquified natural gas could end the great gas robbery.
What if I said there was a way to end Australian inflation, crash interest rates, put housing construction targets back on track and radically boost budget revenues? Liquified natural gas should have made Australia much richer.
And it still could, if we end the great gas robbery. But first I need to explain a revolution in the world of oil and gas back in the days of either side of the Global Financial Crisis.
Both had traditionally been extracted via large and expensive platforms that took a lot of planning.
The evolution of fracking and similar methods allowed for much cheaper and swifter changes in production via a multitude of small wells.
This change arrived in Australia most fully in the coal fields of Queensland.
We had known for a long time that coal seams contained gas. Now we had the technology to extract it.
It was mined, frozen and shipped to Asia as LNG.
What went wrong?
This development should have made Australians more wealthy but, instead, it made us a lot poorer.
Why? Three reasons.
First, unlike Western Australia and every other gas exporter worldwide, the East Coast never imposed restrictions on export volumes.
Under the guidance of gas industry-funded think tanks like the Grattan Institute, East Coast governments believed that the exporters had enough gas to meet the needs of Asian customers and Australia.
This was a lie. The exporting firms never had enough and, when they began shipping LNG, some were forced to buy up all the spare gas to ship it as well.
Making matters worse, gas sets the price of electricity so the entire East Coast economy was shifted into a permanent energy shock.
Second, East Coast governments had long had a plan for Queensland gas to supplant depleting volumes from Bass Strait.
This was essential to the energy transition away from coal-fired power because gas is the perfect transitional fuel to burn in converted coal plants.
So the energy transition collapsed as well.
Finally, no taxation regime was ever created to capture the profits from the new terrestrial gas. The Petroleum Resource Rent Tax (PRRT) only operates for offshore rigs.
The gas exporters pay no tax!
The final insult
So, instead of a huge new export revenue stream to boost budgets, offer tax cuts, and support public services, the East Coast gas export cartel delivered utility bill inflation for every household and business.
During the Ukraine War, when Russia restricted gas flows to Europe and global prices leapt, the local gas export cartel imported prices 2300 per cent above historical averages.
This war profiteering drove power prices to soar 700 per cent above historical averages:
At the peak of this inflation, it comprised 40 per cent of the CPI shock in 2023, without even considering spillovers.
The Albanese Government acted far too slowly in addressing the shock. And even today its solutions are dubious.
Bill subsidies are helpful to households and businesses but they are, in effect, tax-payer subsidies for the gas export cartel to keep price gouging.
How can we fix it?
The issue is not as complex as it seems. There are two obvious fixes.
We could install domestic reservations to all East Coast gas volumes retrospectively.
This will trigger the renegotiation of some export contracts. Something that happens all of the time.
Or, we apply an export levy to all shipped volumes of LNG from the East Coast.
If set at $6 per gigajoule, that will become the local price while still providing a healthy margin for exporters.
This would ease Australian inflation, bring down interest rates, put housing construction targets back on track by deflating energy-intensive building material costs, catapult the energy transition forward, and increase budget revenues.
What on earth are we afraid of?
