China is currently receiving Australian gas at a cheaper price than Australians who work every day. And the reason is ridiculous.
Labor have won a majority to govern Australia for three years. Much of his victory was based on promises to help reduce the cost of living in homes.
There are two components to this. First, wages need to rise faster than for a decade. The Albanian government seems willing to support stronger wage demands amid a fantastically tight labor market, so that’s a good thing.
The second component is the rising costs of goods and services. Can Prime Minister Anthony Albanese succeed on this front?
There is a point of good news. The shock of the global supply chain that drove so many offshore product prices up is virtually gone. Ships, ports and trucks are flowing normally now and the outlook is for prices to be high.
There is also good news about the global production of consumer goods that is catching up with declining demand as interest rates adjust around the world.
The United States, in particular, has large inventories of goods, so any slowdown in its consumption will drive global deflation of goods for next year.
But that always came anyway, and the Albanian government is really just enjoying the unexpected.
Energy is the problem
The biggest problem facing the Albanian government is one of its own creations. It is the extraordinary shock of energy prices that is hitting the East Coast economy.
Since the war in Ukraine, world oil and gas prices have skyrocketed. We all feel it at the gas station. What is perhaps less well known to Australians is that the price of Australian gas has followed suit.
Traditional Australian petrol prices are 3 gigajoules (Gj). Currently, the price is 35 Gj. This is exactly the same price that Europe is paying Russia for its gas, a price that is used as a weapon of war.
But Europe has no gas of its own, so it has no choice. Australia has gas. Lots and lots of it. Much more than we could ever need. Out of the ground at $ 1Gj across QLD and SA.
But then what happens to him is beyond all hope and reason. Three-quarters are shipped to China as LNG at 31 Gj, 4 Gj cheaper than sold locally.
This is the crazy world of the East Coast gas export cartel that is deliberately starving the local gas market to force home prices, while forcing China’s prices down.
To add insult to injury, the gas cartel pays no tax to do so, and in the end, for every person in East WA, it raises electricity prices because gas power plants also set the marginal cost. in this market.
To put it bluntly, all Australians east of the WA border are forced to pay a massive energy tax that will increase the cost of absolutely everything. WA is fine because it has a national gas reserve policy, so its local price is less than 6 Gj!
And we do it as a subsidy to the Chinese economy, even though that country is doing all sorts of economic and geopolitical damage to Australia in return.
Giant carbon tax
There is a very simple solution to this curious form of self-abuse for the cost of living. It is called the Australian National Gas Reserve Mechanism (ADGSM).
Installed by Malcolm Turnbull when the local price of gas was 20 Gj in 2017, it is a contract with the cartel that forces him to leave more gas here so that the local price falls to acceptable prices around 7 Gj.
However, with this head of agreement already underway, with the trigger ready to throw, with the crisis of the cost of living in full swing and severely aggravated by the shock of energy inflation, the new treasurer of labor, Jim Chalmers has already stated that “electricity prices are the poignant end of the cost of living crisis,” but says it will be based on measures to boost renewables to lower prices.
This will eventually work. But as years go by, everyone’s utility bills go crazy, all producers of goods and services in East WA are trying to recoup the cost with higher retail prices, and the RBA is forced to make it worse with rate hikes.
Indeed, Labor allows an energy cartel to impose a giant private carbon tax amid a cost-of-living crisis when the deployment of renewables takes place anyway.
Why the Albanian government allows this farce of economic mismanagement, you might want to ask your local member.
David Llewellyn-Smith is chief strategist of MB Fund and MB Super. David is the founding editor and editor of MacroBusiness and was the founding editor and editor of global economics at The Diplomat, the leading economics and geopolitics portal in Asia Pacific. He co-authored the 2008 Great Crash with Ross Garnaut and was the editor of Garnaut’s second climate change review. MB Fund is underweight in Australian iron ore miners.
Read related topics: Anthony Albanese, China