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Australia's COVID-19 Advisory Board wants government to subsidise failing gas industry

August 27, 2020

Key Takeaways:

Australia’s COVID recovery commission proposes gas industry subsidies with potential to cause long-term economic damage

Gas usage for gas powered generation has declined by 58% since 2014

28 August 2020 (IEEFA Australia): Proposals for providing long term subsidies to the flailing gas industry have the potential to cause significant long-term economic damage to Australia, finds a new report by energy thinktank, the Institute for Energy Economics and Financial Analysis (IEEFA).

With taxpayers subsidising the gas industry up and out of COVID-19 for the next 30-40 years

The National COVID-19 Commission (Advisory Board) (NCC) led by Western Australian gas industry executive Nev Power is proposing taxpayer funds steered into new gas infrastructure and production for the 30-40 year life of the projects.

Author of the report Bruce Robertson says while most Australia industries are struggling to rebuild post COVID without any hand-outs from the Federal government, the NCC’s hand-picked advisory group are suggesting billions of dollars in multi-decade hand-outs to the gas industry.

“The NCC wants gas to be Australia’s economic saviour, with taxpayers subsidising the gas industry up and out of COVID-19 for the next 30-40 years,” says Robertson.

OUR COUNTRY SIMPLY CANNOT AFFORD THIS GIFT-GIVING FOR YEARS TO COME when the gas industry gives us so little in return.

Gas industry bankruptcies, poor profitability and spectacular write-downs are the norm

Robertson says the NCC’s proposals for a gas-fired recovery for Australia is remarkably avoidant concerning current market conditions.

“There is already a massive global over-supply of gas which is likely to last this decade,” he says.

“Gas industry bankruptcies, poor profitability and spectacular write-downs are the norm, while gas prices have bottomed out globally, if not in Australia.”

Robertson says due to an absence of government regulation, gas companies have been allowed to set the price for gas on the east coast of Australia. Since 2014, domestic gas prices have increased exponentially while gas companies have exported ever increasing quantities of Australian gas, at costs cheaper to consumers overseas.

THE GAS COMPANIES HAVE LINED THEIR POCKETS by exporting east coast gas supply overseas, causing what they describe as a supply shortfall locally,” says Robertson.

“In the first half of this year, the gas companies exported 18 cargoes of Liquified Natural Gas at prices below domestic prices according to the ACCC.

“We supply gas to Asia cheaper than we can buy Australian gas in Australia.

We supply gas to Asia cheaper than we can buy Australian gas in Australia

“We don’t need new gas projects as proposed by the NCC. We need the supply we already have to be made available to Australian consumers at reasonable prices and regulated by government via a domestic reservation policy which reserves gas for local consumers, like what they have on the west coast of Australia.”

Robertson says the gas industry sets the high price of gas, fails to pay tax and offers few royalties to state governments.

“This is a losing industry, not a winner to take the country out of COVID. The government is attempting to pick winners but has backed a loser.”

Robertson says the NCC is proposing that government be the buyer of gas at a fixed price under a long-term contract – and then to on-sell it to smaller customers who would then be responsible for transport of the gas to their destination of use.

THIS IS A STRATEGY USED IN SOCIALIST COUNTRIES, with government, and therefore taxpayers, wearing all of the burden of the market,” says Robertson.

“Think Indonesia, Venezuela, China – but Australia?

“If this NCC proposal is accepted, the gas industry would be ‘protected’ at a huge cost to the Australian economy.”

This is a losing industry, not a winner to take the country out of COVID.

Robertson says the NCC is also proposing that the Australian government underwrite volumes in gas pipelines to ensure fixed returns to pipeline companies.

“This is like providing a 100% occupancy guarantee of return to airplane companies on all routes and no matter the market conditions,” says Robertson.

‘If airline companies had organised a similar guarantee from the government before COVID hit, our country would have gone bankrupt within weeks.

“Pipeline companies already have agreements in place with gas companies.

THE GOVERNMENT DOES NOT NEED TO UNDERWRITE VOLUMES. It exposes the taxpayer to unacceptable risks – risks that should be borne by the private sector.”

“The government must reject the NCC’s gas-fired proposals intent on subsidizing a loss-making industry for the next 30-40 years, and instead invest in industries that will provide a return to the taxpayer, government and the economy.”

Read the report: Reviewing Key Proposals by the COVID-19 Advisory Board To Subsidise the Gas Industry: The Government Is Attempting To Pick Winners but Has Chosen a Loser

Media Contact: Kate Finlayson ([email protected]) +61 418 254 237

Author Contact: Bruce Robertson ([email protected])

About IEEFA: The Institute for Energy Economics and Financial Analysis (IEEFA) examines issues related to energy markets, trends, and policies. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy.

Bruce Robertson

Bruce Robertson has been an investment analyst, fund manager and professional investor for over 36 years. He has worked with Perpetual Trustees, UBS, Nippon Life Insurance and BT. He has appeared as an expert witness before a number of government enquiries into energy issues.

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