Once upon a time, there was a land of sweeping plains, ragged mountain ranges and boundless cheap energy.
That place no longer exists.
In its place is a land of droughts and flooding rains that get worse every year with the most expensive energy in the world.
It may be hard to believe, but this week, east coast gas prices were the highest worldwide. Australian gas prices hovered around $19 gigajoules (Gj) while the same was available in Asia and Europe for around $14Gj:
Amusingly, millions of tonnes of Aussie gas are also floating around at sea without a buyer.
Forget Vladimir Putin and his pipeline blackmail of gas-short Europe, we’ve got the treasonous behaviour of Australia’s east coast gas cartel.
When the gas cartel built its liquid natural gas (LNG) export plants in QLD it grossly over-estimated gas supply.
When the plants opened in 2014, it drained all spare reserves from the broader market and Aussie gas and electricity prices immediately began to rise.
By 2017, we paid more for our own gas than our Asian customers. The Turnbull government reined it in with domestic reservation policies.
When the Ukraine War began, the Aussie gas cartel strangled the local market to impose war-profiteering prices 20 times higher than historical averages.
The Albanese government dithered for six months but eventually toughened Turnbull’s rules by imposing $12Gj price caps.
This worked for a while. But the gas cartel is a villain. It laid low for a few months and is now once again refusing to sell gas below the cap. This is to coerce the Albanese government into backing down on its regulatory push of the sector.
Sadly for everybody other than the gas cartel, the price of gas sets the price of electricity on the east coast so power prices have taken off as well:
Above $150MW/h, wholesale power prices are now triple what they should be. This translates to a 60 per cent rise in utility bills for everybody, which, in turn, outstrips the recently announced budget energy bill subsidies by more than two to one.
One does not need to be Albert Einstein to realise that this is bad for inflation. But even he would baulk at how bad the situation has become.
Incorporating the government’s Energy Price Relief Plan announced in the budget, utility bills will still rise by another 30 per cent adding 1.8 per cent directly to the CPI over one year.
But because energy goes into everything else, the spillovers will be much higher because everybody who can pass on this cost will do so.
It could be anything up to 3.5 per cent added to the CPI.
Much of this recent spike in energy prices occurred after the last Reserve Bank of Australia meeting, but even then it was kind of freaking out.
Energy costs were also expected to increase over the coming years, although the government’s Energy Price Relief Plan would reduce the size of the increase in 2023/24 and provide targeted support to low-income earners and small businesses.
The RBA was counting on Albo’s bill subsidies to drop inflation by 1 per cent or more. Current prices will easily outstrip that to the upside.
Either the Albanese government gets serious about breaking the gas cartel once and for all, or it is going to break everything else. Including the price of your house.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geopolitics and economics portal. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
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