Hot air fuels gas threat

Gas policy debate in Australia is quickly descending into farce. A conga line of opinions based on hand-picked factoids are filling the debate with clueless self-interest. If you say something often enough, however inane, it might be taken seriously.

We have calls for reservation of gas supplies that don't yet exist and an orchestrated "grassroots" campaign against development of gas reserves in NSW.

Australia's beleaguered manufacturing sector is seeking impossible intervention in energy markets to save their businesses, when what they are seeking is some kind of intervention via an uncomfortable debate about industry policy.

More recently we have seen new voodoo economics feigning outrage that increased gas development isn't bringing prices down. Or better still, that the concerns about a gas shortage in NSW is simply a conspiracy between state and federal governments, gas suppliers and gas customers in order to jack up prices.

Confused? Get in the queue.

Australia has lots of gas. Gas fields in the Cooper and Gippsland basins have supplied much of the east coast since the 1960s.

The current crunch has been triggered by the depletion of these original gas sources, with the remaining gas often harder and more expensive to extract. This is a big problem solved by a big solution: the discovery and development of gas in deep coal seams located along the east coast of Australia.

As a result east coast gas reserves currently total around 45,000 PJ – 84 per cent of this from coal seams. To give some perspective east coast domestic consumption is around 700 PJ per annum. And there is more resource potential still, with large shale gas resources across Australia.

But there's a catch. Because of their more complicated geography, these new "unconventional" gas reserves and resources are more expensive to extract. The current east coast domestic price of around $3-$4/GJ simply isn't high enough to unlock much investment.

The key is exports. Australia's gas exports are estimated to reach $60 billion in 2017-18. The liquefaction of natural gas exports out of Gladstone is fetching prices of around $8-$9/GJ on the back of strong and growing gas demand in Asia.

Supplying this growth market is a major windfall gain for the Australian economy. Added to the massive gas projects in the West, Australia could be the world's biggest gas exporter by 2017.

In Queensland there is no gas shortage. Customers will pay the new higher price of the new more expensive gas, but the deals will get done. Victoria has sufficient supplies of gas from Bass Strait, which will also meet demand in neighbouring states.

The car crash is in NSW. They currently import around 95 per cent of their gas from SA and Victoria, with around half coming from Victoria during peak periods. From beyond 2015 the SA gas contracts will dial off. More gas could be pushed from Bass Strait up to Sydney through existing pipelines, but some suggest it may not be enough. According to the Grattan Institute'sGetting Gas Right study, NSW customers could face supply shortfalls at peak times as early as 2016.

There is no pipeline from the Queensland gas fields to NSW, no secret stash of gas that is being ripped out of the NSW market and sent elsewhere.

There is a really simple solution. Sydney is ringed by vast coal reserves that have been exploited for decades to fuel the city's electricity supply. So it is also ringed by coal seam gas reserves. Coal seam gas has been flowing out of Camden in Sydney's south-west since 2001, there are gas reserves throughout the Hunter Valley and out to Pilliga in the central west.

A well-orchestrated and largely activist campaign has evolved to oppose development of these resources, many of these voices appear to be against development on any terms.

The NSW Government has reacted to this campaign by imposing 2km setbacks against not only dwellings, but vineyards and even horse stables. This decision has shut down the gas needed to supply industrial customers screaming for gas.

It's harder to see the genuine public outcry. The "Stop CSG" party ran in the recent Federal election in the Senate. It got only 4,225 votes in NSW. That's 0.1 per cent. Both the Smokers' Rights Party and the Bullet Train for Australia parties received twice as many votes. The Pirate Party received three times as many and the Sex Party ten times more.

The setback laws are having an impact. Gas is fuelling an investment boom in Queensland and filling government coffers. The reverse is happening in NSW.

Gas fields take years to develop. If we are any chance of getting gas supplies from NSW projects by 2016-17 we need to get cracking now. Developing these projects will not mean NSW gas prices will magically move back to $3-4/GJ. But it will guarantee that NSW won't run out of gas.