Export push could trigger NSW gas crisis

NSW must end the impasse which is blocking coal seam gas development if it is to head off a gas shortage which may drive up prices, a Grattan Institute study has found.

NSW must end the impasse which is blocking coal seam gas development if it is to head off a gas shortage which may drive up prices, a Grattan Institute study has found.

Measures such as boosting the transparency of the gas market, including establishing new trading hubs and launching a gas price index, and measures such as freeing up the trading of pipeline capacity, are also needed to assist the development of the gas industry, says the study, which was released on Monday.

The launch of several export gas projects in Queensland over the next few years will drive domestic gas prices sharply higher, as prices move closer to international levels. The impact will be most marked on manufacturers which rely on gas as their prime energy source.

The institute warned against setting gas reserves aside for local manufacturers at cheaper prices, which some lobby groups have put their weight behind recently.

‘‘The government should resist pressure from particular user groups urging it to intervene in the market,’’ the study argued.

‘‘Australia has far more to gain than to lose from the global gas revolution.’’

Wholesale gas price rises of more than 80 per cent nationally can be expected, the study found, as domestic gas prices of about $3-$4 a gigajoule move closer to international levels for the first time.

Japanese importers pay about $15 a gigajoule, including transportation and associated costs.

Only about 10 per cent of gas is used by households. Industry is the dominant user of gas in the domestic market.

There is plenty of potential gas supply, although NSW could face a ‘‘gas supply crisis’’ as contracts run out over the next few years, the study warned, with concerns about how they will be replaced.

‘‘Although NSW reserves are only a tenth of those in Queensland, gaining access to them could be critical if gas from the Cooper Basin is diverted to Gladstone [for the Queensland gas export projects], and the pipeline from Victoria is insufficient to consistently meet NSW demand,’’ the study said.

Last week, an alliance of the oil lobby group the Australian Petroleum Production and Exploration Association and the Australian Manufacturing Workers Union was launched to push NSW to relax part of the restrictions which have put extensive coal seam gas reserves off-limit.

The slow response of the oil industry to community concerns has resulted in a ‘‘stalemate’’ in NSW, the study found, with the ‘‘risks of inappropriate or poorly regulated developments ... of great concern to many’’.

It pointed to the United States, where an alliance of oil companies and environmental groups have come together to establish standards for hydraulic fracturing for shale oil and gas as a way forward.

‘‘Only extremists would argue for uncontrolled developments or for a shutdown of the industry,’’ the study found.

‘‘The right balance must be found quickly. There is too much at stake to allow otherwise.’’

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