It’s a bizarre situation. While European gas prices shoot through the roof because there isn’t enough of the stuff, Australian gas prices are also exploding — even though Australia ranks among the world’s largest gas exporters and massive LNG tankers are currently steaming towards Europe. Yet the Australian government expects energy cost increases of over 50 per cent by mid-next year.
How can this be?
Gas is abundant here. Australia sets the prices. Australia shouldn’t need to pay world market rates for its own gas. So why is gas so expensive? The problem is homemade and a textbook example of Australia’s eternal West versus East stoush.
What Western and Eastern Australia have to do with gas prices
I always thought there was just one Australia, with the capital in Canberra and a handful of major coastal cities: Sydney, Melbourne, Brisbane, Perth, plus the smaller but still important cities Adelaide and Darwin as capitals of South Australia and Northern Territory.
But to understand the high gas prices, you need to grasp a historical quirk. Initially, Australia had only an east — old maps show the right, eastern side marked as “New South Wales” and nothing else. The left, western side was simply white hatching, unexplored, nameless.
Decades later, New South Wales kept shrinking as the states of Victoria and South Australia in the south, Queensland in the northeast, and the Northern Territory were carved out. Even later, someone got creative and called the entire left half of Australia “Western Australia” (WA).
In the quirky west, they march to their own drum
For ages, WA had nothing but bush, desert, heat, red sand, rabbits, donkeys, camels, snakes and spiders. Still pretty much the case. Until the few settlers discovered the incredible mineral wealth beneath the surface: gold, coal, zinc, copper, and lately, loads of lithium.
The state capital Perth got richer and quirkier. After all, Perth is closer to Bali than to Sydney, which sits six flight hours away.
It’s not just geographical distance that creates friction between WA and the rest of Australia. Here in our wealthy WA, we live how we want to live, many westerners think. They love their freedom, their practised autonomy (witness the world’s longest COVID lockdowns), with the understanding that Australia’s wealth is intimately tied to raw material exports to the wider world.
Gas for the world — and eastern Australia gets to pay world prices too
Now we finally get to the gas. Ninety-five per cent of Australian-produced gas gets exported. In 2006, the Perth government decided that 15 per cent of gas production must be reserved for WA. That’s why gas in WA costs only one-fifth the price of the eastern states.
Gas is produced in the east too, but almost all of it gets exported at premium prices. There is an agreement with the government that gas companies can’t charge Australians more for their LNG gas than they charge Australian customers, but that’s obviously worthless right now. And since these companies aren’t charities, they’re now extracting serious money from Australians on the east coast for gas. Local premium gas for premium customers.
Australia is not Venezuela
Since gas companies in the west only feel obliged to provide cheap gas at “mates rates” in the west — and there’s only Perth with its one million people — they sell their remaining “domestic gas” at throat-cutting prices to the east as well.
But wait: shouldn’t the state step in?
Australian state governments have surprisingly significant clout. So it’ll be interesting to see whether the state governments in NSW and Queensland manage to negotiate their own domestic supply quotas — if they even want to. The chances don’t look good though. The companies and gas lobby seem too powerful. And since Australia isn’t Venezuela (thankfully), this can’t apparently be pushed through politically from the top.
Anyone living in WA can celebrate. At least there, energy costs seem likely to stay stable while gas prices shoot skyward in the rest of Australia, just like in Europe.
Crazy world right now, even down under.
First published in German at reinergaertner.de, where I’ve been at it since 1997. AI did the heavy lifting on the translation. I did the heavy squinting at the result.