Old fashioned protectionism seeks hand outs to combat low-cost overseas competition. Aside from the motor industry it has been largely usurped by new regulatory forces, like those calling for wind and solar subsidies and others leveraging off environmentalism.
Then up comes a naked lobbying attempt to force domestic supplies of gas to be sold to a value-adding business.
Incitec Pivot wants to turn coal seam gas, which we have in great abundance, into fertilisers. But it is seeking to deprive gas producers of revenue by forcing them to set aside a proportion of the gas they extract for domestic users. Incitec Pivot CEO, James Fazzino writing in the Australian today says,
We are in a fight for survival and our “coach”, the Australian government, has conceded to our opponents one of our key competitive national advantages: energy.
Talking like some socialist senator who believes that all that is discovered and produced in the country rightfully belongs to the government, he says,
We have allowed major oil and gas companies to control the use of the gas so that export contracts to Japan and China get priority.
Domestic sales of gas, where they avoid the costs of ocean transport and of liquefaction, would be expected to sell at a discount from that which is exported. But Mr Fazzino is looking for assistance in the form of a reservation policy which he thinks might lead to gas being sold to domestic users at one-quarter the export price. The simple arithmetic is if producers are forced to sell 15 per cent of gas (the number Mr Fazzino mentions) at a discount of 75 per cent the overall revenue is reduced by around 10 per cent. And a 10 per cent revenue reduction translates into a much greater proportion of profit – the residual after all other costs are met.
Already producers are loaded with massive costs to combat confected environmental issues and are facing a propaganda war from Alan Jones who imagines that gas production will kill off farming.
A 10 per cent hit to revenue would more than halve the prospective profit on most projects and markedly retard the growth of an industry with great prospects. But that is of no consequence to those who are looking to use government muscle to force producers to supply them at a fraction of the market price.
Seriously, did I wake up in the late 1940′s or are the politicians on the Left re-living an acid trip from those days?
Token
1 Oct 12 at 7:34 am
I know of a large property near here (Mildura) importing fertilizer from China at a great cost advantage, due supposedly to cheap power via Australian coal.
An Indian company was setting up production of nitrogen fertilizer in WA, but I seem to remember that not going ahead.
Australian agriculture is nothing without the input of fertilizer, an ever decreasing resource.
farma
1 Oct 12 at 7:42 am
I doubt the price of Australian coal is the key factor in the cheapness of Chinese fertiliser compared with local fertiliser manufacture.
Entropy
1 Oct 12 at 7:46 am
Farma, your story is repeated time and again across the manufacturing and rural industries. I know dozens.
Imagine if we had a source of energy in abundance which is close to the source of electricity, which when it was consumed would statistically not effect the environment.
Somehow China has a fuel like that which is shipped around the world. Why are we missing out?
Token
1 Oct 12 at 7:49 am
The point of Alan’spost is that invited-pivot wants to increase their profitability by using the coercive power of government to force local CSG producers to reduce their profitability by charging less for domestic gas than they can get on the world market.
Entropy
1 Oct 12 at 7:55 am
An additional irony to this story is that the fertiliser plant near Mt Isa is likely to close due to the high price of gas. Our fertiliser will then be all imported.
The high price of gas relative to the US is the problem. Failure to develop our coal seam gas is the cause. And fertiliser users are among the most vocal opponents of CSG.
DavidLeyonhjelm
1 Oct 12 at 8:25 am
Any industry that considers the Australian government to be its “Coach” is living in a World of Shit so deep that free gas would not save it.
Dr Faustus
1 Oct 12 at 9:12 am
David, currently domestic gas prices are lower than the export price. This is because there is very little domestic demand, combined with the high cost of piping it to where it is wanted. For a CSG producer, if they are going to spend all that money shipping it somewhere, they might as well get the best price they can.
The US already has a big market, with lower infrastructure costs. Thus the domestic price is lower over there.
But you are right about the irony of fertiliser users opposing CSG, at least until they can get a good land access agreement
entropy
1 Oct 12 at 9:17 am
Entropy has a point – Barnaby has a plan to allow the land owner to claim 25% of the value of the gas removed from their property.
Think that might affect profitability?
It will certainly stimulate the landholders to adjust their calculations.
Rather like the chinese coal miners active around Gunnedah who neutralised some of the opposition to their plans by buying the whole farm at 3-4 x market price.
Incitec Pivot are also shameless squealers though- one very large grain farmer in the north west of NSW imported his own bulk carrier of urea and didn’t they try and cause him merry hell.
http://qcl.farmonline.com.au/news/nationalrural/agribusiness-and-general/general/incitec-greentree-and-their-fight-for-the-fertiliser-market/1510595.aspx?storypage=0
murph the surf
1 Oct 12 at 10:52 am
Entropy has a point – Barnaby has a plan to allow the land owner to claim 25% of the value of the gas removed from their property.
Think that might affect profitability?
It will certainly stimulate the landholders to adjust their calculations.
Rather like the chinese coal miners active around Gunnedah who neutralised some of the opposition to their plans by buying the whole farm at 3-4 x market price.
Incitec Pivot are also shameless squealers though- one very large grain farmer in the north west of NSW imported his own bulk carrier of urea and didn’t they try and cause him merry hell.
.
http://qcl.farmonline.com.au/news/nationalrural/agribusiness-and-general/general/incitec-greentree-and-their-fight-for-the-fertiliser-market/1510595.aspx?storypage=0
murph the surf
1 Oct 12 at 10:55 am
I hate to break it to the protectionists however once significant LNG capacity is commissioned in Gladstone, the eastern Australialian gas market will then have significant exposure to the international LNG price. put simply, the current wholesale gas price in the eastern states gas market of $3-4 GJ will reach parity with the LNG net back price of $7-8 GJ.
WA has had a 20% reservation policy for 6 years and the wholesale gas price here is on parity with the LNG net back price. Funny that.
Antipodean
1 Oct 12 at 11:13 am
The plethora of new gas makes future international price forecasting more difficult than usual. Australian consumers could expect a supply under market conditions at a discount to the overseas price as long as they are located close to the gas source, and a lesser discount if they have to access gas via a long pipeline
Alan Moran
1 Oct 12 at 11:28 am
alan, a surprising number of well-meaning people want to protect consumers from the scourge of lower prices.
Richard Epstein talked about progressives think they can tell the difference between a good monopoly and a bad monopoly. Seems that the same goes for corporate subsidies.
Jim Rose
1 Oct 12 at 4:34 pm
While I have no sympathy for IP, whose fertiliser price list seems more closely aligned to the passage of rain fronts than international supply/demand, I am more concerned with the impact of CSG on agriculture generally.
I fail to see the logic or the sense in rushing to be first in world with a technology that could have catostrophic effects on the truly sustainable industries it seeks to co habitate with. Both grazing and cropping depend on water, much of which is drawn from layers near the extraction points.
In 30 years we could have sold all the gas and stuffed two export industries more than capable of earning export $$ for Australia in millenia to come.
The Quiet Farmer
1 Oct 12 at 5:24 pm
Jim
The ACCC is chock full of these intelligent progressive sand a sensible govt wd abolish it.
Quiet Farmer
We are hardly first with csg. US has had it for over a decade and we too have seen it for almost as long. There has never been a case of it stuffing up agriculture or anything else. Excessive risk a erosion wd have meant no modern agriculture in Australia, a goal that the greens actually support
Alan moran
1 Oct 12 at 6:59 pm
This is a good point.
Please remember, Quiet Farmer, that the people opposing this are opposed to primary industries in Australia as a general thing.
dd
1 Oct 12 at 7:01 pm
In short, CSG is not going to destroy other industries.
dd
1 Oct 12 at 7:02 pm
Mr Quiet Farmer is a Greenie in a poor disguise.
Your concern is noted.
So is the point that you are a Greens fellow traveler.
Winston Smith
1 Oct 12 at 7:55 pm
AM, why then are QGC claiming first in world for their project? I realise there is CSG in America, I assume the liquifacation (sic) is new??
dd, the risk of erosion via wind and water has been largely overcome by new technologies.
I too am nervous about the alliance between the Greens and those growers opposing CSG as I am well aware of the Greens agenda.
Winston, I’ve been called many things but never a greenie. I am simply concerned that the extraction of a significant amount of ground water from the aquifiers I and my neighbors pump from may not leave any water for my cattle. Cattle can survive a while without food but not long without water!
The Quiet Farmer
2 Oct 12 at 5:06 pm