Aussie Reserve Bank Governor Philip Lowe. By Crawford Forum - 4438 ConLog_299, CC BY 2.0, link

Aussie Reserve Bank: Increase Domestic Gas Supply to Reduce Inflation

Essay by Eric Worrall

RBA Governor “… One way of tackling inflation induced by supply-side shocks is to address the supply…”.

Lowe says more gas could make ‘substantial’ difference to inflation

Jacob Greber Senior correspondent
Nov 28, 2022 – 5.51pm

Reserve Bank governor Philip Lowe has pushed federal and state governments to get more gas into the domestic energy market to curb inflation as federal Labor rushes to finalise a plan that could include a price cap that would potentially discourage investment in new gas wells and pipelines.

Amid calls for redistribution or diversion away from export markets of existing sources of gas, Dr Lowe said the focus should be on what “we can constructively do to increase” supply, which he said would help make a “substantial contribution” to controling inflation in coming years.

“One way of tackling inflation induced by supply-side shocks is to address the supply said,” Dr Lowe told Senate estimates committee hearing on Monday.

“And if we can do something on energy and rents next year, inflation will come down quickly.”

Among options that remain on the table are price caps, which have strong support inside the government because their impact on household and business bills would be immediate.

“I don’t want to get drawn into what the right measures are, but just that at the analytical level, increased supply of gas and electricity in the domestic market would be helpful.”

Read more: https://www.afr.com/politics/federal/lowe-says-more-gas-could-make-substantial-difference-to-inflation-20221128-p5c1w7

The apparent eagerness to embrace price caps rather than supply side reforms seems astoundingly reckless.

My impression is the leftwing greens who run the Federal Australian Labor Government are ideologically opposed to permitting more fossil fuel extraction. The Victorian state Labor government went even further, they enshrined a ban on fracking in the state constitution.

Perhaps Australia’s new leaders genuinely believe their green energy revolution will shortly eliminate the need for fossil fuel. This could explain the recklessness – they don’t care about the damage price caps will do to market confidence, because they plan to eliminate the market, and ban fossil fuel extraction, as soon as renewables eliminate the need for gas.

Whatever the explanation for the recklessness, I’m glad I live somewhere warm, where I can still live in comfort when home heating is no longer available.

Correction (EW): h/t Nick; Changed the title from “Aussie Reserve Bank: Encourage Gas Drilling to Reduce Inflation” to “Aussie Reserve Bank: Increase Domestic Gas Supply to Reduce Inflation”. Also added the paragraph about “I don’t want to get drawn into what the right measures are…”.

h/t Nick – Looks like the cap on gas prices is likely to go forward, though for now Labor Queensland State Premier Annastacia Palaszczuk is refusing to play ball.

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Streetcred
November 28, 2022 10:29 pm

Way to logical to be comprehended by the socialist green influence in the Federal Labor Government. Command economy is their schtik.

Duker
Reply to  Streetcred
November 29, 2022 10:13 pm

Also was Aust Liberal party policy at last election
“renew the Heads of Agreement with Australia’s east coast gas exporters to keep the cost of gas down and ensure gas is available for domestic industries.
keep in place the Australian Domestic Gas Security Mechanism enabling the Minister for Resources to act in order to prevent domestic gas sh

https://www.liberal.org.au/our-plan-resources
Ensuring gas is available is the language they used for a quota for local supply

RickWill
November 28, 2022 11:05 pm

Philip Lowe has pushed federal and state governments to get more gas 

What a heretic. Maybe he does not know gas is carbon based.

Phillip Lowe needs to pull his head in before it gets lopped. I suggest he is not long for the job. Gone by September unless he gets back onto the righteous path of carbon demonising.

Nick Stokes
November 28, 2022 11:24 pm

“Aussie Reserve Bank: Encourage Gas Drilling to Reduce Inflation”
 
I can’t see the paywalled version. But from what is quoted here and the visible excerpt at AFR, I see no mention of drilling. What he says is

“Reserve Bank governor Philip Lowe has pushed federal and state governments to get more gas into the domestic energy market to curb inflation as federal Labor rushes to finalise a plan that could include a price cap that would potentially discourage investment in new gas wells and pipelines.”

Drilling won’t help that; we have plenty of gas, which we export. What is needed, as he says, is to get it into the domestic market. Simply increasing the surplus will just mean more exports.

Nick Stokes
Reply to  Eric Worrall
November 29, 2022 12:03 am

What he envisages, to help inflation, is that the domestic price will be lower than the world price. The only way that can be sustained is by some restriction of export. There is provision for that in the export permits. Scott Morrison gave up the possibility of exercising that before 2023, but that time has now nearly arrived.

Nick Stokes
Reply to  Eric Worrall
November 29, 2022 12:24 am

News about that here

Nick Stokes
Reply to  Eric Worrall
November 29, 2022 12:27 am

Eric,

  1. Increase domestic drilling and flood the market with cheap gas.

Again, you just can’t maintain a price differential wrt export unless you restrict export in some way.

Abd there is no way Australia can flood the world market.

Nick Stokes
Reply to  Eric Worrall
November 29, 2022 1:25 am

The competitive price for domestic gas is world price minus transport costs. And that is what we are paying now. The RBA thinks (re inflation) that we need to be paying less. Something has to be done to make that happen.

Ron Long
Reply to  Eric Worrall
November 29, 2022 1:41 am

Capping gas prices? All together now…if you sanction something you get less of it…

Drake
Reply to  Ron Long
November 29, 2022 8:04 am

And as RR the Great said:

“Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.” 

MarkW
Reply to  Ron Long
November 29, 2022 8:33 am

As Jimmy Carter found out over 40 years ago is that when you cap prices, the only thing that happens is supply shortage get worse.
The people will be able to afford gas. Too bad they can’t find any.

Nick Stokes
Reply to  Eric Worrall
November 29, 2022 10:59 am

flood the market with gas, beyond the capacity to export. Rinse and repeat.”

All the repeat will tell us is that they can raise the capacity to export faster than we can raise production.

Australia produces about three times the domestic requirement. Two thirds goes to export. Why would raising that to four times requirement solve the domestic pricing problem?


jtom
Reply to  Nick Stokes
November 29, 2022 9:06 am

Shallow thinking, Nick. The natural gas prices in the US are far less than the global average. I pay about $0.53 per therm. Try thinking. Domestic gas is piped as gas. Transported gas must be liquified. That not only requires additional cost but causes other problems, namely lack of facilities to do that and a restricted number of transport ships for carrying the fuel.

Last edited 2 months ago by jtom
Nick Stokes
Reply to  jtom
November 29, 2022 9:31 am

That not only requires additional cost but causes other problems, namely lack of facilities to do that and a restricted number of transport ships for carrying the fuel.”

We solved that problem. We built more. The US will do the same. Then, like us, you will pay the world price minus transport costs, which aren’t a large fraction.

downunder
Reply to  Nick Stokes
November 29, 2022 10:48 am

Rubbish! There is price difference between piping gas locally and shipping it as LNG.

Reply to  Nick Stokes
November 29, 2022 10:23 pm

Nick,
In resources exploration and mining, it remains a dominant guiding principle that “if you build a better mousetrap, the world will beat a path to your door”.
Almost every time a person says “Hi, I’m from government and I am here to help you” it disturbs the pathways to a better mousetrap, usually badly.
There is now and there has long been a large gulf between the ways that governments and resources people think. It is like astrology versus astronomy.
Far too much of my/colleagues careers in resources was spent fighting changes caused by intended and unintended government help. As a result, our rate of new resource discoveries suffered.
Infer from this what you wish.
Geoff S

Joseph Zorzin
Reply to  Nick Stokes
November 29, 2022 4:35 am

you mean more exports ain’t a good thing?

Nick Stokes
Reply to  Joseph Zorzin
November 29, 2022 9:31 am

As the saying goes, you can’t have your cake and eat it.

DonM
Reply to  Nick Stokes
November 29, 2022 1:17 pm

Utilize the resource.

Make more cake … eat it … sell what you can’t eat … eat what you can’t sell … repeat.

OR, claim that it doesn’t matter how much cake is on hand & that it will always be more efficient to sell/ship the cake to others. And if this claim is truly the case, then use the cake profit to buy/invest in steak & potatoes.

(AND, if you don’t like cake, steak, or potatoes, don’t be an ass and try to restrict others from having their cake, steak, and potatoes out childish selfishness.)

Last edited 2 months ago by DonM
Nick Stokes
Reply to  DonM
November 29, 2022 2:10 pm

eat what you can’t sell”
The problem is that they can sell the lot, at high prices, and there isn’t any left for the locals, unless they pay a matching price. Making more doesn’t help that.


DonM
Reply to  Nick Stokes
November 30, 2022 5:05 pm

And if this claim is truly the case, then use the cake profit to buy/invest in steak & potatoes.

universalaccessnz
November 28, 2022 11:25 pm

Like the NZ Greens. Too logical,

Greg Locock
November 29, 2022 12:09 am

https://www.rba.gov.au/speeches/2022/pdf/sp-gov-2022-11-22.pdf

Graph 7 is a load of old rubbish about a 1000% increase in global disaster since 1940-1959,

the commentary being Globally, the frequency of extreme weather and climate events has increased over recent decades and it is likely that this trend will continue (Graph 7).[3] Over the past 20 years, the number of major floods has doubled and the frequency of extreme heatwaves and droughts has also increased significantly. 

ref [3] is See IPCC (2021), ‘Summary for Policymakers’ in Climate Change 2021: The Physical Science Basis. Contribution of Working Group I to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change, Cambridge University Press, Cambridge, United Kingdom and New York, NY, pp. 3−32. Available at ..

Greg Locock
Reply to  Greg Locock
November 29, 2022 1:06 am

Sorry, late edit, yet the referenced document does not have the data for the chart, that i can tell.

Nick Stokes
November 29, 2022 12:09 am

Breaking:

Government to cap wholesale gas prices as part of market intervention to lower power prices

The ABC can reveal the government will likely cap wholesale gas prices at about $12 a gigajoule, demand a guaranteed domestic gas supply from producers, and enforce a mandatory code of conduct as part of a market intervention first flagged five weeks ago. “

Last edited 2 months ago by Nick Stokes
Nick Stokes
Reply to  Eric Worrall
November 29, 2022 1:23 am

 who plans to invest in Australian gas”
People will invest whenever they can make money. And they are making plenty at the moment.

Tom Halla
Reply to  Eric Worrall
November 29, 2022 7:58 am

Reagan dealt with the oil crisis by removing price controls, as socialists deliberately ignore.

Editor
Reply to  Nick Stokes
November 29, 2022 3:38 am

Hmmm. There’s not a lot of investment in Victorian gas right now. The state constitution banning it might have something to do with that of course (what a despicable abuse of a constitution). They are a bit like Joe Biden – ban all domestic activity then beg others to increase supply.

MarkW
Reply to  Mike Jonas
November 29, 2022 8:38 am

Biden has decided to support US companies drilling more oil wells.
In Venezuela.

Nick Stokes
Reply to  Mike Jonas
November 29, 2022 9:28 am

The Victorian constitution does not ban fracking.

Victoria is producing far more gas than we need. The surplus is going to export. Australia produces about three times domestic needs. It isn’t going to solve the local price problem if we produce four times what we need.

Editor
Reply to  Nick Stokes
November 29, 2022 12:04 pm

Enshrining Victoria’s Ban On Fracking Forever

(premier.vic.gov.au – Daniel Andrews’ website)
Premier of Victoria
The Hon Daniel Andrews
05 March 2021

The Andrews Labor Government has listened to farmers and regional communities and banned fracking in Victoria for good, enshrining the ban in the state’s Constitution.
The Constitution Amendment (Fracking Ban) Bill 2020 has passed through the Upper House and Victoria’s Constitution will now be amended, safeguarding our regions from the threat of practices that could harm the environment.
[my bold]

Nick Stokes
Reply to  Mike Jonas
November 29, 2022 12:16 pm

OK, sorry, I thought it was just at the proposal stage.

MarkW
Reply to  Nick Stokes
November 29, 2022 8:37 am

Like most socialists, Nick can’t see beyond the here and now.
Yes they are making money now. However that is due to a temporary condition.
It will end long before new wells can be located and drilled.
Beyond that, we have government officials talking about outlawing fossil fuels.

Unlike socialists, capitalists have to be aware of and plan for the future if they want to stay in business.

Drake
Reply to  Nick Stokes
November 29, 2022 8:16 am

Definition of fascism:

A system of government marked by centralization of authority under a dictator, a capitalist economy subject to stringent governmental controls, violent suppression of the opposition, and typically a policy of belligerent nationalism and racism.

a) All parliamentary governments are dictatorships for the period after the ne PM is elected, they can do pretty much whatever they want.

b) “the government will” force an industry to do as they say.

c) The opposition are DENIERS and must be put down.

d) Give it a little time, but in this case, the race is CONSERVATIVES, or in Aus., the Liberal Party. With a little more time, the leftist gloves will come completely off and reeducation camps will come as soon as they have crushed the economy so badly that they don’t need the productive conservative workers to maintain the minimum production for a successful first world economy, since you will be by then a 3rd world country.

You get what you vote for. As do we in the US.

November 29, 2022 12:40 am

Here is some incidental correspondence that might help assess the current mood here in Australia. Geoff S
http://www.geoffstuff.com/rba.docx

observa
November 29, 2022 4:14 am

The climate changers are in full command in Oz with their scary stories for children-
https://www.msn.com/en-au/news/other/they-are-just-trying-to-scare-us-geophysicist-on-global-warming/ar-AA14Go2S

While they continue with their net zero fantasy with no major political party opposition-
https://www.msn.com/en-au/news/other/absolutely-impossible-to-achieve-50-per-cent-by-2030-without-a-radical-change-to-the-economy/ar-AA14E3jJ

So the reality of rapidly climbing energy prices naturally requires the Federal Albanese Govt to soak the energy providers for some short term returns in order to give handouts to struggletown. However that will tread on Queensland’s State Labor Gummint toes and so the infighting begins-
https://www.msn.com/en-au/news/australia/hands-off-our-generators-qld-premier/ar-AA14Gbre

Meanwhile Victoria reckons the answer is an even faster shift to the dilute unreliables fantasy and return power generation and distribution to the public circus-
https://reneweconomy.com.au/goodbye-to-them-victoria-votes-to-end-coal-and-make-radical-shift-to-renewables/

We live in interesting times with these climate changers convinced that they can crack the code the rest of the world haven’t/can’t. This time it will be different folks!

Pat from Kerbob
Reply to  observa
November 29, 2022 6:12 pm

The Germans have failed and they are the most technically advanced.
Can’t make renewables work any more than they could make communism work.

Joseph Zorzin
November 29, 2022 4:33 am

“… One way of tackling inflation induced by supply-side shocks is to address the supply…”

the climatistas must go catatonic when they hear that

wazz
November 29, 2022 7:36 am

Lowe was EXACTLY wrong when he said in Autumn 2020 that house prices were falling.

Lowe has already apologised for wrongly saying interest rates would remain unchanged till 2024.

Self important overpaid public service pooh bears on the wide brown land generally avoid having the population rightly seeing them as dills.

So I suppose trying to look wise by conjuring up from multi-hundreds of years ago visions of Adam Smith’s 3 laws of economics looked bombproof and useful to his reputation.
These are as we all know –
Law of Supply and Demand,
Law of Self Interest,
and Law of Competition.

But the States and NT all GreenLeft will mostly obstruct gas exploration and pipelines in their own way or with State financed lawfare. Qld is the exception and PalaceChook might help Albo if the little Tory-Fighter really wants her to.

Editor
Reply to  wazz
November 29, 2022 6:59 pm

The textbooks say that when there’s inflation, central banks should increase interest rates. That is what the central banks have been doing. That makes sense when the inflation is driven by consumer demand. But inflation this time is being driven mainly by increasing energy prices, thanks mainly to green policies, and the major effect of that is reduced consumer demand, so IMHO raising interest rates will likely make things worse not better. I think we’re already seeing the markets cottoning onto that, with bond rates not taking off – eg. USA 10Y Govt Bond 3.752% vs Central Bank Rate 4.00%. I surmise that interest rates may soon start easing again while western economies flirt with recession, and that the situation won’t correct until reliable energy supply becomes more plentiful and cheaper. NB. That’s not a prediction, because so many things can happen to change the situation, eg. if the USA government started pumping printed money into the economy.

Tom Halla
November 29, 2022 7:54 am

With price controls, they have clearly learned nothing from Nixon and Carter’s folly in doing so. How to make a shortage into a crisis, in one easy lesson.

MarkW
Reply to  Tom Halla
November 29, 2022 8:40 am

If one assumes that the destruction of the free market is their goal, their actions make a lot more sense.

Duker
Reply to  MarkW
November 29, 2022 10:05 pm

In Australia all minerals and oil and gas in the ground already belongs to the government. The miners and drillers merely have a license to extract subject to the government’s conditions

It’s not like US where what’s in the ground belongs to the owner of the land on the surface

wazz
Reply to  Duker
November 30, 2022 1:57 am

Our States own “…all minerals and oil and gas in the ground…” and licence mineral exploration and mining. Landowners/occupiers are usually able to sign access/drilling agreements that in the event of a discovery sees them sell the farm for 1.5 or 2 times ag value. Miners usually buyout all land in sight of operations.
Offshore oil n gas is run by the Commonwealth.
And Commonwealth has powers (seldom used) over exports.

Duker
Reply to  wazz
November 30, 2022 10:37 am

I said ‘government’… to allow for the different levels. But of course like the US federal powers can in many situations trump the states, exports may be one

wazz
Reply to  Duker
November 30, 2022 1:48 pm

Apologies Duker for my nit-picking –
and –
environment is significant where Commonwealth has extra powers over projects additional to the States. Hancock Prospecting say that to get a big project up takes “…ever increasing approvals and hoops to be able to drill, years of studies, years of thousands of approvals and permits,…”
I assume that various “Enviromental approvals” are a big part of the thousands of approvals.

jtom
November 29, 2022 8:57 am

No, no, no. Keep fossil fuels in short supply. That drives up their prices. Coal, oil, and gas companies make huge profits which they, in turn, use to pay out huge dividends. I am a happy recipient of some of those dividends. They more than pay for my higher cost of energy plus the inflation that it brings. The idiots supporting the policies that make energy costs soar are the ones left out on the cold, literally.

observa
November 29, 2022 3:51 pm

Never come between a climate changing Labor State Premier and a bucket of coal generation money Albo-
https://www.msn.com/en-au/news/australia/hands-off-our-generators-queensland-rejects-calls-to-cap-coal-price-to-bring-down-energy-bills/ar-AA14FQ6J
LOL.

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