Ensuring domestic supplies of natural gas for Australian businesses and households

Abstract

Australian gas markets are undergoing a substantial transformation. The development of LNG has resulted in a step-change in gas demand. The lumpy and capital-intensive nature of exporting gas has, however, shifted the natural incentives of some economic participants. These changed incentives have created some concern among large domestic industrial users of natural gas. Some domestic gas users have advocated for the reservation of gas reserves for domestic consumption. This paper assesses whether the reservation of gas is the best public policy response to the issues facing industrial users. Developing new dispersed supplies of natural gas (e.g., NSW CSG) is the most logical way to reduce pricing pressures for industrial users of natural gas. In this context, the public policy interests of domestic gas producers and consumers should be aligned. Public policy makers must remove unnecessary barriers to the exploration and production of new gas reserves. Increasing supply at a time when new LNG loads (beyond those under construction) are unlikely to materialise would alleviate any potential shortages of natural gas. At the same time, domestic suppliers of natural gas must continue to innovate to manage uncertainties on behalf of their customers. This is already occurring through the development of gas storage to manage peak loads.