Qld exports threaten gas supplies on east coast

Deep-seated doubts have been raised over the outlook for gas supply in the eastern states of Australia in the wake of the looming launch of a series of gas export projects in Queensland.

These projects are due to start production from 2014, raising the prospect of supply shortages emerging from 2015 - little more than 15 months away.

Domestic gas prices are already rising to international levels as gas producers scramble to take advantage of the dramatic shift in the industry's dynamics.

The Australian Energy Market Commission has queried whether existing new fields could be developed soon enough to meet expected supply shortfalls.

The commission, an arm of government that oversees the gas and the electricity markets, is seeking to ensure appropriate policies are in place to avoid problems emerging.

In its report released on Friday, it pointed to the possibility for new sources of gas such as from the Kipper field in Bass Strait, the Gunnedah and Gloucester basins in NSW, the Ironbark field in Queensland and unconventional gas from the Cooper Basin and possibly the Northern Territory, although this source is yet to be technically proven.

"Production from existing sources in eastern Australia could increase," the AEMC report noted.

"It is unclear at this stage, though, whether all of the proposed projects will proceed and if they do, whether they will be used to supply the domestic or export market."

The other uncertainty is whether any of the new fields could be developed soon enough to fill the expected gap given the need for ongoing exploration, government approvals and spending commitments to be made.

Reflecting the mounting supply concerns which have emerged within the energy industry, one of the largest retailers, Origin Energy, recently turned to Exxon and BHP Billiton for a large new supply contract from Bass Strait, agreeing to pay an oil-price linked gas price, among the first of these high-priced contracts to be seen in the local market.

"Conditions in the market are expected to become even tighter from 2015," the AEMC said.

Work is under way to launch a short-term, or spot gas market centred on Wallumbilla in western Queensland as the hub, along with making gas pipeline capacity more transparent, which could also help a short-term gas trading market emerge.

At present, all gas is contracted on medium to long-term contracts, with little transparency over the pricing.

The AEMC study comes as the federal government is to intervene in NSW to break the impasse which has stopped the development of the coal seam gas sector amid deep-seated opposition in some quarters. Earlier this year, the Victorian government established a taskforce to examine gas supply and pricing issues, with the federal government also reviewing the outlook.

There is ongoing speculation of the loss of jobs in manufacturing due to rising gas prices, with some companies considering shifting capacity abroad, or speculation it could move to locations nearer to gas supplies, such as Victoria, to avoid paying pipeline costs.

The biggest move so far was the decision of Incitec Pivot to establish an $US850 million ($907 million) ammonia plant in the US to tap cheaper gas, due to concerns over the outlook for gas prices in Australia.