Australian Government Goes Soviet, Set Prices of Energy

Australian Government Goes Soviet, Set Prices of Energy. By Geoff Chambers.

[Australian Petroleum Production and Exploration Association] chief executive Samantha McCulloch, representing companies including Shell, Santos, Woodside, Beach and Cooper Energy, said the ACIL Allen modelling showed the intervention “could see wholesale gas prices up to 40 per cent higher than if the market had been left to do its job”. …

“The report also cautions that price caps will encourage additional consumption in the short-term that could put significant strain on gas supplies. It warns of the potential for blackouts in Victoria as meeting peak day demand becomes more difficult due to delays in new supply coming online.

“According to the report, these higher prices and energy security concerns are a trade-off for short-term benefits that ‘may be nil or very minimal in the first instance’. It is this near-sighted, populist stance of the government that is at the heart of the industry’s ­concern.” …

“Price caps do not resolve the fundamental issues that are driving higher prices. The modelling shows that higher prices return after price caps are removed because the fundamental driver of higher prices has not been addressed.” …

Bureaucrats setting prices didn’t work for the Soviet Union, and it won’t work here. Prices contain valuable information about supply and demand — ignoring it by setting prices causes more problems than it fixes.



Long term, it’s a disaster. Talk of a capital strike is already common in Australian oil and gas circles:

Santos, which owns a stake in Queensland’s GLNG gas export project, said the Albanese government’s heavy-handed approach had put Australia on par with authoritarian regimes.

“This Soviet-style policy is a form of nationalisation. This will result in companies needing fiscal stability agreements with the government before new gas supply projects can take investment decisions in order to secure capital, just as would be the case if they were operating in Argentina, Venezuela or Nigeria,” Mr Gallagher said.

“Every business owner in Australia should be alarmed at what the federal government has done. If it doesn’t like your business, your profits or the prices you charge for your products and services, it will regulate you. And it will regulate you if the unions don’t like your business.”

From living in Canberra and socializing with these people, I am pretty certain that the Labor Government and the bureaucrats simply have no idea of the harm they are doing. They are clueless about how business works — because they simply have no interest in real economics. How does understanding it help them? Financial success and advancement for them comes by political maneuvering and persuading people, not dealing with the real world.

“…this temporary measure should do nothing whatsoever to inhibit investment,” Mr Albanese said.

See? Just denial, says what he wants to be true. Cannot deal with reality sensibly, so he childishly wishes it away.

Ideologues who don’t understand the world

UPDATE: Mr Albanese reveals his ignorance with his assertion:

Mr Albanese said if Australia “was a good place to invest in 2021, when the average price was $9.70, it’s a pretty good place to invest in 2023 when there is a 12-month limit of $12”.

Ridiculous, Mr Never-run-a-business. If you (as PM) cap profits when prices are good, you change the overall profitability. Are you going to subsidize profits/losses when prices are bad? That too would affect investment decisions.

Investors factor in their view of future prices, and probabilities of making various profits. Mr Albanese’s assertion is a declaration that he has no idea how this works. He just changed the profit outlook, and expects investors to wear it. Furthermore, he sets a nasty precedent that will take a decade or more to wear off even it is abandoned next year. Capital strike here we come, because the probability of profit just got lowered.

Imagine having to ask some capricious numbskull like Mr Albanese if you are “allowed” to make a profit, and how big it can be?

Markets set prices, factoring in all information. If you don’t like the price change the supply or the demand, but don’t just use the power of the state to make stuff up. Reality won’t respond the way you want.