Australia’s Gas Crisis Proves It’s Time to Renationalize Energy

Politicians and energy companies say there’s a gas supply crisis, but huge price increases are caused by profiteering private corporations. It’s long past time to renationalize them.


A power plant in Gladstone, Queensland, Australia, photographed in 2009. (LBM1948 / Wikimedia Commons)

BY DANNY WARDLE

JACOBIN

06.25.2022

Across most of Australia, energy bills have been rapidly increasing as a result of a global spike in coal and gas prices. The short-term causes are obvious: the Russian invasion of Ukraine and the subsequent sanctions on Russia have reduced the global supply of coal and gas. In addition, roughly a quarter of Australia’s inefficient and outdated coal-fired power stations have gone offline due to unplanned maintenance and outages. Along with peak demand for heating due to cold weather, the result is surging energy prices.

To alleviate the pressure, the Australian Energy Market Operator (AEMO) stepped in to impose price caps in Queensland, South Australia, New South Wales, and Victoria. The only problem is the big gas and coal companies to decided that they weren’t interested in taking a hit to their profits in order to supply domestic consumers. They withdrew supply from the market, threatening blackouts across Australia’s eastern states.

This move forced AEMO to suspend the National Electricity Market in its entirety, instead imposing a system where the market operator sets fixed prices and can demand the energy companies to provide supply. It’s clear-cut proof that privately owned energy production and distribution has failed — and it makes the case for public ownership obvious and pressing.
Profiteering Corporations

Australia is one of the world’s top three exporters of coal and natural gas. Given this, the idea that the nation is facing a “gas shortage” is absurd. It’s precisely because most Australian gas is exported that we’re facing this crisis.

For decades, both Liberal and Labor governments have made agreements encouraging the overseas sale of gas by private suppliers like Santos, which runs the Gladstone LNG plant in Queensland. Thanks to the rising global price of gas, these firms have made huge profits. But this has also exposed Australian gas markets to the volatility of global gas prices, particularly impacting the eastern states. At the end of the day, ordinary Australians are paying the price for the gas companies’ superprofits.

Santos CEO Kevin Gallagher insists that the industry cannot “conjure up gas magically.” Yet Santos had no problems exporting 23.28 million tons of gas last year. Indeed, overall gas production massively increased under previous Coalition governments, while domestic gas consumption only increased slightly. Because Australian gas companies export roughly 80 percent of the gas they produce overseas, increasing production boosted profits but did little to prevent today’s crisis.

This is why we aren’t facing a supply problem; we’re facing a profit problem. Private energy companies have no interest in meeting the local population’s energy needs if it’s not profitable enough.
Tax Their Superprofits

Chris Bowen, Labor’s federal minister for climate change and energy recently convened a meeting of state energy ministers. They agreed to look into giving the AEMO the power to buy and store gas, to be used in times of crisis. There is merit to this proposal. Western Australia, which has managed to avoid the crisis so far, has a domestic reserve policy that ensures that 15 percent of all domestically produced gas is reserved for domestic use. When the Varanus Island gas explosion decimated Western Australia’s gas supply in 2008, those domestic reserves allowed the domestic supply of gas to the state to continue. And unlike most of the eastern states, Western Australia completely owns its electricity supply system.

However, this is hardly a short-term solution to the current price spike, as Bowen has acknowledged. He’s wrong, however, to claim that “there’s no easy fix this year.” There are plenty of things that the government could do to alleviate the crisis. For starters, the government could follow UK prime minister Boris Johnson and introduce a windfall profit tax on energy companies. The rationale is simple: if gas companies are making massive short-term profits thanks to the war in Ukraine, then those extra profits should be shared. Ordinary people shouldn’t be left freezing in the cold while gas producers make windfall gains.

Using taxes to redistribute these profits could help people to pay their expensive energy bills and alleviate cost-of-living pressures. Shamefully, however, Chris Bowen recently told the Australian Broadcasting Corporation that the Anthony Albanese government has decided to rule out a windfall profit tax. It’s hardly unexpected, however. Like the Coalition, the Australian Labor Party is in the pocket of the oil and gas industry — just last year fossil fuel companies donated $392,354 to Labor.

The further lesson from the current crisis should be clear: the Australian National Electricity Market has been an unmitigated disaster for ordinary people. The waves of privatization that began in the 1990s led to higher prices, less reliable access to electricity, and worse efficiency. As the Electrical Trades Union’s acting national secretary, Michael Wright, has pointed out, “the current regulatory system fails us during the good times, with rampant profiteering and price gouging, and fails us when times are bad.”

Private coal and gas has only ever been good for the large corporations that get to extract enormous profits from utilities.

The problems with the Australian National Electricity Market need to be addressed at their core. The government should scrap it, nationalize the gas companies, and nationalize the energy distribution monopolies. The shortages and price spikes that we’re facing today simply wouldn’t be happening if the eastern states hadn’t privatized their electricity grids in the 1990s and early 2000s. Besides, essential goods like water, gas, and electricity ought to be publicly owned and operated for the purposes of meeting people’s basic needs.

The cost of renationalizing the energy industry is hardly a problem. Purchasing a profitable asset means that it will eventually pay for itself. The only real cost, therefore, would be the interest paid on the debt to purchase it, a fact that even critics of nationalization are willing to acknowledge. And considering fossil fuel subsidies already cost the government an absurd $11.6 billion last year, it’s not as if governments are unwilling to spend big to keep the industry afloat.

However, there’s a much more important reason to nationalize the electricity sector: it opens the possibility of the government planning a transition to renewable energy. Taking for-profit private companies out of the picture would free up the billions of dollars they receive from the government in subsidies. If you add existing fossil fuel revenues, which are currently privatized, it would make available a considerable funding pool to power a just transition to renewable energy.

Although in the short-term, we are still reliant on the environmentally destructive gas industry, in the long term, it must be eliminated. As Matt Bruenig from the People’s Policy Project has pointed out, it’s exactly industries like these that ought to be publicly owned and managed. The private market has already shown it can’t lead us towards decarbonization — and now, it can’t even guarantee a reliable supply. It’s time to renationalize energy.

Danny Wardle is a PhD candidate at the Australian Catholic University and a member of the Victorian Socialists