How Australia​ left itself hungry for gas supplies

In 2002, the price of liquefied natural gas was at a historically low level. Photo: Michele Mossop
In 2002, the price of liquefied natural gas was at a historically low level. Photo: Michele Mossop

No one went hungry at our place.

My father killed our meat, grew our vegetables and was a champion at bartering. A leg of lamb was worth a tub of crayfish to fishermen down the coast. My mother always had chooks, and there were warm eggs collected every morning.

The old boy would snort at the idea of selling a paddock of sheep or cattle without first selecting a fat lamb or a fine steer for the table and the freezer. When Mum took eggs to market, there were plenty put aside for our frypan.

It doesn't bear contemplating, now they're gone, what they might have thought about a country that allowed its entire store of gas to be flogged off without first setting aside enough of the stuff to ensure the nation's power grid continued humming and that consumers could afford to turn on a light switch.

They'd have been plain flummoxed to know that in the excitement of hawking off Australia's natural resources to China, the initial sale contract set a bargain price that couldn't be negotiated upwards.

But that is what Australia's governments allowed.

It's been a scandal for too many years, and no recent government can escape blame.

I was in the Canberra press gallery in 2002 when prime minister John Howard called a press conference to announce, with the widest grin he could manage, that after years of negotiation, Australia's mining interests had pulled off a $25 billion deal to supply China with liquefied natural gas.

It was, crowed Howard, Australia's biggest single export deal. Ever.

"Needless to say, I am absolutely delighted. It is so good for Australia," he said. "This is the kind of outcome that will underpin the economic strength of this country."

It was, he said, growing more expansive and breathless by the minute, "a gold medal performance".

It wasn't, though.

September 2009: Kevin Rudd and Chevron managing director Roy Krzywosinski at the Gorgon Gas site at Town Point, Barrow Island. Photo: Mogens Johansen

September 2009: Kevin Rudd and Chevron managing director Roy Krzywosinski at the Gorgon Gas site at Town Point, Barrow Island. Photo: Mogens Johansen

By 2015, it was being called the worst deal ever done. The Chinese by then were paying about one-third the price for Australian gas that Australian consumers themselves had to pay ... and they were guaranteed to continue doing so.

The Chinese had got the deal of a lifetime because the consortium of Australia's North West Shelf operators hadn't thought to insert a clause into the contract that would raise the price of gas from what was, in 2002, a historically low level.

As world gas prices rose and rose, the price paid by China for what Howard had called "a gold medal performance" stayed at rock bottom. Australia's gas exports of 3 million tonnes a year from that single agreement were contracted to stay at basement prices until 2031.

Howard, visiting China in 2007, was pedalling as fast as his little legs would take him from the idea that his government should take responsibility for the fiasco. It wasn't for his government to interfere in pricing. No sir!

"I would never encourage the idea that governments should negotiate LNG prices," he said. "At no stage was the Australian government directly involved in pricing issues in relation to the $25 billion contract."

A few months later, in the dying days of his government, Howard was back in China to witness the signing of a new, $35 billion liquid natural gas deal. The Chinese were so thrilled they made a gift of two giant pandas to Adelaide's zoo.

The deals kept coming after Australia changed governments.

The Labor administrations of Kevin Rudd and Julia Gillard were only too pleased to keep announcing huge exports of LNG to China, Japan and South Korea. The gas price for most of these deals was linked to the price of oil.

All along, not one of these governments ever thought to require exporters to set aside part of their bounty for the use of Australian consumers. The whole thing was up to the market.

And the market, as always, couldn't give a stuff about who paid, so long as payments kept flowing from somewhere and no one in power was demanding anything different.

Which, with Australia's energy market currently suffering policy paralysis, is why Prime Minister Malcolm Turnbull has been forced to arm-wrestle big gas-producing companies into agreeing this week to provide enough supply for the Australian market to avert a predicted shortfall - with consequent price hikes - over the next two years.

These are, of course, the same companies that previously expressed outrage that a government would require them to consider the needs of the nation from which they extract the gas in the first place.

These are the same class of geniuses that have been praised for their "gold standard" behaviour even when they negotiated contracts that, if they'd been small-town snake-oil salesmen rather than multinational big shots, would have seen them ridden out of town on a rail.

Ah, but now they've been threatened by a government that previously abhorred market intervention, they've suddenly found extra gas from where there was none before and, glory be, they're promising to improve transparency about how they put a price on the stuff.

Yet things remain so dire that there is talk of importing gas, either the Australian stuff on sale so cheaply overseas, or supplies from one of our competitors, Qatar.

Back on the farm, our parents, who knew how to provide without running out of anything, would have been scandalised almost beyond words.

This story first appeared on Brisbane Times.