A strange alliance has formed between manufacturers being killed by higher gas prices and the gas industry which is doing the killing. Both want more gas.
The Australian Petroleum and Exploration Association (APPEA) continues its campaign expand coal seam gas production:
Today’s draft decision on regulated gas prices by the Independent Pricing and Regulatory Tribunal (IPART) highlights the urgent need for increased natural gas exploration and production in NSW, the Australian Petroleum Production & Exploration Association (APPEA) said in a statement.
Australia’s second biggest onshore natural gas field is within NSW borders, yet 95 per cent of the state’s natural gas supply is imported from other states.
This is despite indigenous reserves that would fulfil the state’s natural gas needs for the next 20 years and potential resources that could supply NSW with a cleaner burning energy source well into the next century.
APPEA has long argued that downward pressure cannot be applied to rising gas prices if restrictions on developing natural gas from coal seams in NSW are allowed to continue, the statement said.
The successful natural gas development story unfolding in most parts of Australia, but not NSW, is underpinned by sufficient gas reserves to meet both domestic and export markets.
The ability to access international markets has stimulated the development of a whole new export industry in eastern Australia. Coupled with LNG developments in Western Australia and the Northern Territory, this has powered recent Australian economic growth and, if not impeded, will continue to do so for decades to come.
Domestic and export demand is driving growth in the east coast gas market from 700PJ to 2800PJ by 2016-17. Indeed, there are now more than 1.1 million gas users in NSW alone.
Just last year, the IPART identified the development of NSW natural gas as one of the most effective ways to put downward pressure on prices. Developing NSW gas reserves would also increase employment and economic activity in NSW, as has been the experience in Queensland.
Where is APPEA’s campaign for a domestic gas reservation policy? It is only this that would ensure that NSW gas remained in NSW and held down prices. If not, new pipelines to QLD or even NSW-based LNG projects (which have been in planning before) could ship it all to North Asia as well.
And from the Australian Industry Group via The Australian:
Gas prices across the eastern states could spike higher than world levels if governments did not end logjams delaying the extraction of coal-seam gas, business warned after NSW was hit with a double-digit hike in bills.
…The announcement sparked warnings by the Australian Industry Group that gas users in key sectors of the economy faced a doubling or tripling of wholesale gas prices and exposed concerns that penalty clauses in gas export contracts could disadvantage domestic users.
AI Group NSW director Mark Goodsell said prices could go above world prices for exports if gas production lagged behind growth in demand and that state and federal governments needed to respond to ease pressures on supply and price.
Increased production of CSG and other unconventional resources “needs to happen if we are to avert the risk of prices spiking above export parity”, Mr Goodsell said. He also called for a national interest test before future gas export expansions.
More production again, though at least this time it’s within a context of reservation so it makes some sense.
But both groups ignore the costs of coal seam gas (CSG) extraction. By my estimates, CSG comes out of ground at around $7mmbtu break even. With North Asian prices set to fall to $14 and below as US gas comes on stream that means export parity prices should stabilise in a similar $7mmbtu range (once you factor out liquifaction and transport costs).
Happy to be corrected but I remain unconvinced that more CSG will do anything to reduce local prices.
