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Jumpin’ Jack Flash? It’s ‘bout gas, gas, gas!

By Geoff Carmody - posted Friday, 12 May 2017


Australia has lots of gas. Some is already being extracted, used here and, increasingly, exported. We have more that could be used, if permitted. There's talk we might even become the world's largest gas exporter.

Really? Then why all the hand-wringing about an east coast gas supply shortage?

What's the problem?

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The east coast gas market is behaving strangely:

  • The local gas price is soaring (now up to, and beyond, $20 per gigajoule). Yet we are exporting increasing amounts of local gas for only about $10 per gigajoule. On a 'netback' basis (ie, excluding shipping and processing costs for exports), this translates to a domestic price of around $8-$9 per gigajoule, or 40%-45% of the domestic price.
  • Some worry gas supplies in Australia will be diverted to exports so much that they may not be available here at any price (or, at least, at a price consistent with ongoing business viability).

Where's market arbitrage? If local gas prices are high, and export prices are low, why isn't gas supply – both Australian and imported – shifting from overseas demand to meet local demand?

What's forcing exports up despite better local returns (increasing local prices in the process)? What's stopping more imports seeking those same better local returns (and increasing local prices in the process)?

Gas is a major household and business energy input. Quite recently, Australians were encouraged to switch to gas from coal-fired electricity. It was cheaper, with lower greenhouse gas emissions. We did.

Now local gas supply is becoming very expensive or even (some assert) unavailable.

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Alternative currently-available base-load energy sources are also less available.

Existing coal power generation is being shut down. New coal investments are limited, shunned by some banks, and under a policy 'sovereign risk' cloud. It's low-cost base-load power, but with low investor interest.

Some, including official sources, express concern about business closures, greatly increased household budget pressures, and a broader chilling effect on Australian economic activity.

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About the Author

Geoff Carmody is Director, Geoff Carmody & Associates, a former co-founder of Access Economics, and before that was a senior officer in the Commonwealth Treasury. He favours a national consumption-based climate policy, preferably using a carbon tax to put a price on carbon. He has prepared papers entitled Effective climate change policy: the seven Cs. Paper #1: Some design principles for evaluating greenhouse gas abatement policies. Paper #2: Implementing design principles for effective climate change policy. Paper #3: ETS or carbon tax?

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Creative Commons LicenseThis work is licensed under a Creative Commons License.

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