Market bases theories as to correct pricing don't cover the case of finite resources with no easy replacements .I suggest looking back from year 2030 or so we will think it was the LNG buyers who got the subsidy. Advocates of 'world pricing' seem to assume that we can always find replacement gas reserves with an affordable extraction cost. What if we can't? Then we will wish we still had the gas for ourselves. Put it this way: cash flow in the 2020s could mean expensive energy and shortages in the 2030s.

I think what will prove this theory is there could be an even bigger price shock if compressed natural gas CNG becomes the major replacement for diesel fuel in trucks and buses. That will increase the gas price more than LNG exports. Once again industrial gas users like power stations and brickworks will want a quota of cheap gas.

Some indicative numbers. The recent spot price of wholesale piped gas in eastern Australia has been about $5 per GJ. The Japanese have paid up to $19 per GJ for LNG with say $2 of that the liquefaction cost. Diesel fuel of which Australia consumes about 10 million tonnes a year costs around $40 per GJ which can be assumed to be the price point for CNG.

It would be naive to think that domestic gas customers will accept a price doubling over say the next five years. While it appeals to some in practice 'world pricing' is going to be severely restricted.

"A tax on gas producers may or may not be a good idea." Surely they pay comapny tax already, at a percentage rate. So the more profit they make, the more tax they pay, just like any other business or individual. If they make big profits, they pay big tax. Provided they are monitored carefully for tax avoidance, why should they pay a different tax rate from anyone else, particularly as they are in a highly risky business, commercially, polictically and operationally?

Hmm, the explanation about how a fixed domestic price policy can be interpreted as both a tax and a subsidy was excellent for us non-economists. However, the conclusions seem unsupportable in the real world.

It is implausible to suggest that somehow manufacturers can choose alternate energy systems by themselves. What sounds good as a theory, if you exist in a bubble, is simply impractical and a complete furphy. What alternate energy systems do you suggest an aluminium smelter, a brickworks manufacturer, a car manufacturer, or a food manufacturing business choose? How can they choose a different one, with what resources, knowledge and expertise do they make the choice? Do you suggest that they develop their own?

Even a cursory glance at the field of energy production, shows that technologies come in decade-long waves, that start with a First of a Kind (FOAK), which is too expensive and clunky for the majority to use, and must be developed until the Nth of a Kind (NOAK) point is reached, where it is low cost, reliable and everyone starts using it.

Thus, electricity or gas are the NOAK technologies, and there really isn't an alternative for them at present, so there are only two realistic energy choices. I'm assuming that you meant that manufacturers might want to generate their own electricity using PV, wind or wave technology, none of which are at the NOAK point, although PV is close. So the manufacturers have a third choice, to make their own electricity, which brings significant resource and cost constraints (i.e. how many businesses have the expertise to make and sustain this choice?).

However, this misses a broader point, which one will see if you look over the longer term. Frankly, gas is the best and cheapest energy delivery system for the next twenty years, and there is no viable alternative in many cases. Thus, power generators should switch from coal to gas, which should reduce emissions without massive extra cost (i.e. most extra cost recovered by improved efficiency), and manufacturers should switch to gas where they can.

From an economic standpoint, gas is much better for society at present than electricity. Why? Just consider efficiency of transmission. For every 1 watt of electricity I consume as a user, more than 300 watts of energy must be generated at the electricity plant (note this is purely transmission losses, not counting generation efficiency), whereas gas transmission is >90% efficient (again not counting production losess). Thus as a society, while we cannot produce large volumes of carbon-neutral electricity at low cost, direct gas use by many different businesses will drastically lower overall carbon intensity.

One would expect this technology picture to change over the next twenty years, but for the time being, gas is significantly better for the environment than any other NOAK energy technology.

So your point that locking in domestic gas reserves and prices, somehow reduces climate adaptibility of businesses, is simply not true.

From another angle, the supposed nirvana of a free market approach, which you clearly espouse, would create a crushing energy cost burden for all Australian businesses and households, as gas prices could easily go above $15-20/GJ as the producers sell to the highest profit markets (i.e. Asian countries with no gas). So our electricity would be expensive due to the carbon tax and poor network regulation, and our gas would be expensive as we would just sell it all to the highest bidder.

The economic view of leaving everything to the market surely has little credibility by now under any broad objective view, but unfortunately space prohibits me from properly critiquing your underlying premise. If you wish me to debate with you why your underlying premise is completely unsound, and seemingly flys in the face of the last few hundred years of evidence, I am happy to take the discussion off-line. Economics clearly has a long way to go before it can be considered a science.

Let get it straight. Australia allowed gas companies to process and transport the gas owned by all Australians to Australian consumers at a price that provided a reasonable return to the gas companies. Stephen King is now saying that it is OK for these gas companies to:
Divert gas to overseas consumers.
Increase the price of the gas supplied to Australian consumers to the "obscene profit" level.
Make it more difficult for Australian manufacturers to compete by increasing the price of gas and the value of the $Aus.
Whinge like mad when governments want a more appropriate share of the profits.
And do all this while providing very few jobs for Australians.

I suggest that fear of gas price escalation has already had some major consequences. The ill fated 'contracts for closure' for 2000 MW of brown coal plant appeared to assume the money would go towards combined cycle plant. The big recipients would have been Hazelwood and Yallourn. Since brown coal costs 60c per GJ no realistic carbon tax or guvmint handouts can overcome this if gas prices keep rising.

Secondly the Olympic Dam expansion, SA's biggest project, involved constructing a gas pipe and 250 MW onsite power station. BHP Billiton blamed rising input costs of which gas is obviously a major component. Note also that crop yields depend heavily upon urea fertiliser made from natural gas. We also need gas peaking plant for heatwaves and to balance fluctuations in wind power. Germany has decided to build another 6 GW net of coal fired stations for this task since they fear price escalation of Russian gas.

Theories that giant batteries will store energy when wind and solar are idle seem somewhat fanciful. Neither can we spread compost over millions of hectares in the wheat belt. So what will we do when gas is prohibitively expensive because we've sold it as LNG?

The article reads like pure abstraction - little connection to on the ground reality as J R Davidson explained. (Let alone any discussion about the desirability of reducing reliance on fossil fuels or replacing cheap and dirty or even dear and dirty fossil fuels with somewhat cleaner ones) Shock horror- subsidising local gas consumption!!! (John Howard did that for LPG transport fuel didn't he?) Why is there such a huge surge in shale gas production in the US? Production subsidies have resulted in such huge production that the US might even start exporting gas to Asia .This worries those behind Australia's incredible gas rush as the high prices fuelling their frantic scramble to extract and export while the going's good might start to dwindle all too soon. So some of them are now investing in Indonesian gas projects to cut costs.

As the dairy farmers have pointed out , the "world price" for milk powders is corrupted by subsidies for farmers in other exporting nations.

Aren't LNG producers already subject to Keating's resource rent tax as well as company tax? As for subsidies - all sorts of discounts available for miners I thought.

I 'm intrigued by Brett Forbes's argument re the emissions intensity of gas versus electricity related to emissions losses. Doesn't the scale of transmission loss depend on the distance from the generator? How does it relate to the differing ghg effects of methane from fugitive emissions and CO2 from burning coal? Sadly here in Vic cheap and dirty brown coal generation will go on as long as the plants hold together with duct tape ,have free permits and their multinational owners get away with emitting particles as well as CO2

I think the resources belong to the people can you tell me why we shouldn't benefit by enjoying the resouces at a reasonable price? While still ensuring the company that is profiting by developing exporting that resouce still has a successful business? Is this not a win win situation?