Gas companies find out politics affects markets too

When Malcolm Turnbull decreed at the National Press Club in February that 2017 would be all about energy security, he thought he’d found the perfect wedge between Labor’s green-tinged renewables focus and the bulk of ordinary people hit by soaring electricity prices.
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He never dreamt he would be forced into a U-turn on gas and one of the more dramatic government-led market interventions in recent times.

But that’s what he has now done: intervened in the commercially profitable LNG market mechanism to skew its terms and fashion an improved price outcome for voters – the actual owners of the resource.

Market purists immediately grumbled about a new sovereign risk, noting that global energy companies had made substantial investments and entered into international deals to supply n gas only to have the rules change on them mid-stream.

And they weren’t the only ones caught on the hop. Cabinet figures including Energy Minister Josh Frydenberg and Resources Minister Matt Canavan had argued persuasively against mandating n domestic gas supplies, or “reservation”, at the expense of exports.

In May last year, Frydenberg enthusiastically agreed that Labor’s advocacy was an “investment killer”, as industry interests had dubbed it.

More recently, Canavan was asked if it could work. “Well, I don’t think that’s a very good outcome … the basic idea is that you keep more of your resources here to boost domestic supplies, to lower the price potentially, but that doesn’t work in any other market,” he said.

But the government is now banking on precisely that happening. Indeed, that is the stated objective here.

In hindsight, Turnbull had been sliding towards this outcome all along, pulled by Labor’s more adroit politicking and given no comfort by gas industry insouciance.

High-profile emergency meetings with east coast suppliers had brought a guarantee of peaking supply, but little else.

The industry had become its own worst enemy, refusing to give ground and spectacularly failing to understand that the domestic gas market is not merely a market; it exists within a polity, a community, a nation.

“It is unacceptable for to become the world’s largest exporter of liquefied natural gas, but not have enough domestic supply for n households and businesses,” Turnbull said on Thursday, for the umpteenth time.

Gas executives weren’t listening. They are now.

For companies which trade in invisible substances, they had proved amazingly blind to the obvious political realities before them.

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