Manufacturing a gas crisis  

Tristan Edis at The Climate Spectator has an article on the strange maneuverings of the coal seam gas industry in NSW as they try to create an illusion of gas scarcity to try and overturn moratoriums on drilling - Manufacturing a gas crisis.

NSW sources its gas from natural gas developments in the Cooper Basin of Central Australia (which had been thought to have peaked a decade ago but have now expanded again and reached a 20 year high) supplemented by and shale gas from the Cooper Basin (reckoned to be significant in some quarters) along with gas from the Bass Strait (which has also seen a rebound in production in recent years).

While the LNG export plants for coal seam gas being built in Queensland are looking to try and use some of the gas from the Cooper Basin, Tristan thinks that their is sufficient supply to support this for some time, with NSW gas consumption flat and a likely shrinking of demand from gas fired power plants as gas prices rise to equalise with those being paid by Asian customers (minus liquefaction and transport costs).

It’s important to note that gas demand in NSW is not growing noticeably, so this isn’t the thing driving any kind of shortage. Also, the traditional gas fields that have supplied the gas to NSW - South Australia's Cooper Basin and Victoria’s Bass Strait, aren’t about to dry up within the next few years. So, we aren’t actually about to run out of gas in the ground. But there are limits on supply in terms of how much equipment is in place to process the gas and transport it via pipelines into NSW, however this can be changed with a few years lead-time for construction.

The fear centres on the fact that Moomba also has a substantial pipeline into Queensland. Over the 2014-17 period as the LNG plants ramp up, they will suck so much supply from South Australia into Queensland that without development of NSW gas fields, manufacturers and households in NSW will be left short of gas.

King points out that, in reality, such a shortage for industry and households won’t eventuate and this is really just a matter of price. If NSW consumers were in desperate need of additional gas then, without doubt, prices would rise (and they are already rising). Now the interesting thing that King points out is that there is one particularly large consumer of gas that has ready substitutes – power generation. King explains:

“...what’s actually going to happen is that the first source of supply will be the withdrawal of use of gas for power generation. Okay. So, that’s actually where the first source of gas is going to come from, not a gas field. It’s going to come out of power generation. It’s not going to come out of industry. And, you know, in my view the suggestion that industry is the one that gets sort of shorted by this is not right because it will be power generation that will be shorted by that increase in demand for gas.” This doesn't mean we'll be doing without power, though. What King acknowledged is that the Renewable Energy Target by inducing extra renewable power capacity into the market, it is taking gas out of power generation and also freeing up NSW black coal generating capacity.

The major oversupply of power generation will ensure NSW has no fear of running out of gas or power.

Now, of course, a big rise in the gas price is hardly welcome news for manufacturers. So will freeing up coal seam gas development in NSW help?

It certainly wouldn’t hurt, but the extent of the difference it makes is highly dependent on circumstances. King points out that due to pipeline constraints from Moomba into Queensland its possible for additional supply from NSW to reduce gas prices.

However it needs to be a lot of a supply, which is conceivable but will take time. Just like in any other market, NSW CSG producers will price their product at the competing alternative supplier. If the marginal supplier is still gas from Moomba then NSW CSG will make no difference to price. For it to make a difference it needs to bring forward enough supply over 2014-2017 to more than offset any drop-off in supply from Moomba.

Those suggesting NSW faces an imminent gas crisis are yet to thoroughly explain whether this could be done. NSW manufacturers aren’t likely to find themselves without gas, but they will be paying much higher prices. Extra gas from NSW CSG could help, but it will take several years to make a major difference.

Plus it's worth noting if you look closely in the map above there is a dotted blue line running out of Narrabri into Queensland. That's a proposed new pipeline that would then allow NSW CSG to be exported into the LNG-linked Queensland market. If there really is a major shortage of gas to supply LNG plants and it turns out that NSW CSG is plentiful, then it probably wouldn't depress NSW prices for too long before that pipeline gets built.