Are gas exports leading to supply shortages?

Gas prices are rising countrywide  and a new green paper suggests this could be becasue of exports  171 84562 0 14100806 300

Regulations could be decreasing the amount of gas that is available in both NSW and Victoria, according to a green paper released by the Department of Industry.

The long awaited-report examines - among other things - just what factors are combining to create short-term supply shortages and increasing gas prices.

What role do exports play in the domestic gas market?

In Australia, the gas pipes are all privately owned. However, some sections are regulated by the government. While there are three gas markets in Australia, it is in the eastern parts of the country that the market is undergoing rapid transformation, as it is beginning to export its product. It is becoming more of a global market with booming exports. However, this means that those who live in these areas are more often than not being exposed to international competition and pricing. The Western market began exporting in 1989 and the northern market in 2006. 

The eastern market is the largest in Australia, according to the green paper, and accounted for 62 per cent of the country's domestic gas production between 2012-13.

The energy green paper claims these eastern market supply shortages are largely the result of the LNG exports in Queensland, which have begun only recently. However, it also adds that the development of CSG supply in NSW and Victoria have added to the problem. CSG can account for 34 per cent of Australia's eastern market production. There is also strong potential for shale gas, tight gas and deep CSG across the country, although this remains in the early stages.

What do supply and demand have to do with the gas market?

As more gas is being exported, this results in a lower level available on the domestic market. When supply is lessened, prices naturally increase as a result. 

"Most stakeholders agree that increasing gas supply will help reduce upward pressure on gas prices, but higher domestic prices are nonetheless inevitable," the report states.

Gas prices are particularly high in New South Wales (NSW) as this state relies on other areas of the country for the majority - 95 per cent - of its gas supplies. It has been slow to develop coal seam gas resources.

However, Industry Minister Ian Macfarlane spoke to The Australian's National Affairs Editor, Sid Maher about this issue.

"We are actively giving consideration to linking the Northern Territory gas supplies into the eastern gas market," he said.

This is one way to improve the supply of gas to the area. However, he said this option would be costly. So, it is likely the price of gas in NSW will continue to rise, he said.

The green paper indicates that the cost of LNG projects Down Under is higher than in East Africa and North America as "workforce issues" such as labour costs and conditions have resulted in increased prices.

However, placing limits on the amount of gas that can be sold overseas is not the best way to prevent these shortages, according to the Green Paper.

"Ad-hoc and interventionist approaches to shaping our future energy system will not give the best results," it states. 

What are the recommendations for the gas industry?

The green paper suggests that a more transparent and flexible gas market could help consumers to feel more certain about gas. At present there is a lot of uncertainty on availability and pricing. 

The Government is currently seeking comment on the goals set out in the green paper, including how to address the near-term east coast gas supply, how to sustain the national gas supply and how to make sure that gas prices become more transparent. The green paper also stresses the importance of making it easier for locals to understand how the international market works. This is because it affects domestic prices. Further reporting through BREE and AEMO may help to provide greater transparency going forward.

Posted by Paul Doyle