24 March 2015
Domestic gas market defies basic laws of supply and demand
It's quite logical really. If there’s a shortage in a market, or if the price is high, the market should respond; the higher prices and intensive demand should encourage an increase in supply as new and existing participants come in to take advantage of opportunities.
Economics 101. Unfortunately in the Australian gas market this doesn’t seem to be the case.
Australia is well on the way to becoming the world’s largest exporter of LNG; an excellent outcome for the industry and the economy.
LNG in Queensland is the new supply and demand centre for natural gas in the east coast gas market. The LNG demand is three times the size of the domestic demand on the east coast. Clearly, it is a game changer.
This is causing a major refocus of the east coast gas market. It’s also putting pressure on the market — we are facing price hikes and potential gas shortages.
We are waiting for Economics 101 to kick in and for the market to respond; there should be increased interest in getting gas into the market.
Major gas producers say there’s plenty of gas.
Major gas users say there’s no gas at a reasonable price and some say there’s no gas at any price. Who is right? Is it possible they are both right?
Do we have the information necessary to determine who is right and what is actually happening?
There are many announcements by government about improving information provision in gas markets. That’s an excellent concept — and much improvement has now been made.
There is information about national daily gas flows and short-term price-setting data available to the market — through the Short-Term Trading Markets (Sydney, Adelaide and Brisbane), the Gas Bulletin Board, the Wallumbilla Trading Hub and the Declared Wholesale Gas Market in Victoria.
No such detailed information is published about gas production and processing capabilities. Publication of such information would help gas market participants make better-informed decisions in this time of structural change.
As well as assisting the users of gas to forward plan for their businesses, better information might highlight possible opportunities for smaller explorers to enter the market as producers.
Currently their business model favours selling their gas or their tenements to the larger producers.
Smaller producers might be more suited to providing the smaller demand requirements of the domestic market.
Government policies to improve information availability and, perhaps, access to processing facilities would encourage new entrants into the domestic gas market.
This, in turn, would further increase competition and information in that market.
As always, the answer to a shortage in a market is to increase supply.
As the Australian Pipeline Industry Association, the gas transportation industry has for a decade been an advocate of a strong national gas market. Under new branding — as the Australian Pipelines and Gas Association — the gas transmission industry intends to intensify their advocacy of policies that will encourage increased supply and an efficient, transparent and successful natural gas industry in Australia.
With Australia’s abundant reserves of natural gas, it’s time we made stronger efforts to ensure increasing usage of this cleaner fuel within Australia.