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CBM vital if NSW is to avoid gas shortages from winter 2016

World Coal,

Economists at AGL Energy Ltd have released a new research paper ‘Solving for ‘x’ – the NSW Gas Supply Cliff’, which suggests that New South Wales (NSW) could potentially experience around 20 days of gas shortages from Winter 2016.

Written by AGL’s Chief Economist and Griffith University Professor of Economics, Paul Simshauser, and AGL’s Head of Economic Policy & Sustainability, Tim Nelson, the research has for the first time modelled the adjustment task for eastern Australia’s gas supply and demand over the next five years on a daily basis.

NSW has a number of gas supply contracts maturing from 2016-2018.  At any other time in history, a cliff-edge in NSW contracted gas supply would be solved through contractual renegotiations between gas producers, resellers and industrial consumers. However, unlike other states which produce surplus gas, NSW produces only five percent of its own gas.  As Queensland’s Liquified Natural Gas (LNG) projects simultaneously come online, much of the existing domestic gas contracts from Queensland and South Australia are also scheduled to expire, thus creating a gas supply cliff in NSW.

The paper highlights that even after pipeline expansions to the Eastern Gas Pipeline, the Culcairn Victorian-NSW Interconnect, and the completion of AGL’s Newcastle Gas Storage Facility, the only remaining option to prevent ongoing periods of gas shortages from occurring beyond 2016 is to increase gas supply in NSW. The paper concludes that the only way to restore energy security will be if NSW CBM fields, located in Gloucester and Narrabri, are allowed to enter production.

AGL claim that NSW’s position of importing 95% of its gas requirements from other states will “become untenable in the next few years. However, there are hundreds of year’s worth of natural gas trapped in coal seams in NSW. It’s clear, therefore, that AGL and its CBM operations can play a major role in securing energy for NSW long into the future.”

The paper highlights the Gloucester CBM field on the mid-north coast, and reports that this project alone would be able to supply about 20% of the state’s gas needs – none of which would be exported.

UOW expert refutes gas shortage claim

A senior researcher from the University of Wollongong has, however, dismissed the claims made by AGL that businesses in NSW cold run out of gas if the CBM industry isn’t allowed to flourish.

Dr Geoff Kelly said that, based on the laws of international supply and demand, the gas company’s argument lacked logic.

“Proponents of CSG development have argued that by extending [natural gas] supply in Australia, local prices will be held down,” he said. “There is not a lot of logic to that. If rational gas producers in Australia can access international markets with higher prices than local markets […] they will do so.

“The only thing which would prevent that would be if a gas reservation policy were implemented – and that is unlikely.”

Dr Kelly said a form of a gas reservation policy had been introduced in Western Australia, but gas companies were likely to strongly oppose it in NSW.

“Local consumers will see an increase in natural gas prices unless regulatory steps are taken to limit that,” he said.

“The only state where that has been considered is WA where the government maintains a gas reservation policy to keep some part of new developments for local use – and hence through maintaining local supply, keep local prices down.”

“It has yet to be seen the long-term effects of that policy, and the gas industry is arguing strongly against it,” Kelly concluded.

Edited from various sources by Sam Dodson

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