Santos chief executive, David Knox, has today implored Australia’s authorities to support coal seam gas (CSG) extraction, arguing that it is essential to ensure that supply can catch-up to demand, which is expected to triple on the East Coast as the Gladstone LNG export plants come on line, in turn lowering domestic prices and preventing gas shortages. From Business Spectator:
Mr Knox said it is crucial for Santos’ Narrabri project to go ahead, despite significant political opposition to the extraction of coal seam gas.
“I’ve been saying very clearly to New South Wales, it’s going to be hard. You’re potentially running the risk of running short of gas in 2017 and ’18 and beyond…
“If we can increase the supply, then we’ve got a reasonable chance of having a North American experience take place, which would be fantastic.
“It could happen here in Australia. It will probably on a longer timeframe, but certainly it’s my ambition to unlock the gas resources of this country and bring them to market both domestically and through our expanding LNG system,” he said.
The way I see it, Knox’s comparison with the US shale gas boom is not particularly useful, and his claimed benefits to Australian consumers from CSG extraction are optimistic.
The US is primarily a domestic market, whereas Australia’s gas market will soon become linked to the global market, requiring us to pay global prices (less the cost of liquefaction and shipping).
In the US, unlike Australia, significant export restrictions on domestic gas exist. The Natural Gas Act 1938 requires anyone who wants to import or export natural gas, including LNG from or to a foreign country, to first obtain an authorisation from the Department of Energy. The granting of export licenses are only a recent phenomenon, so the US gas price is not yet linked to the world market (although this will gradually change as LNG export plants are built).
Accordingly, the huge positive supply shock from the shale gas boom has directly benefited domestic US gas users via lower prices, whereas if a similar CSG boom occurred in New South Wales or Victoria, chances are that much of the gas would be exported. As a result, domestic Australian gas prices would not be lowered to anywhere near the same extent as in the US (although it would likely provide some marginal downward pressure on prices).
In short, without a domestic gas reservation policy, Australian consumers are likely to face escalating gas prices, even if CSG is extracted en masse from both New South Wales and Victoria.
And of course there are the broader concerns over the efficacy of fracking the countryside in the pursuit of CSG, which still need to be resolved.
