THE NSW government has announced it will fast track Santos’ Narrabri coal seam gas (CSG) project to lower prices, but analysts say the prices are set to rise regardless of new supplies entering the market.
Santos signed a Memorandum of Understanding (MoU) with the government which locks in the time frame for the regulatory approvals needed by Pilliga Forest project.
New State Resources and Energy Minister Anthony Roberts said a gas shortfall is expected to kick in after 2015, and new supplies are needed to curb rising cost of living pressures.
“Developing a sustainable and safe natural gas industry in NSW will ensure an affordable and secure energy supply for households and businesses,” he said.
The environmental standards and other regulatory processes for the project remain unchanged under the MoU, Mr Roberts said.
An alternate view is posed by Matt Grudnoff, economist for progressive think tank The Australia Institute.
Mr Grudnoff said gas prices will rise regardless of new supply in NSW.
Queensland’s nearly completed export terminals at Gladstone will link the Australian gas market to world prices, which are significantly higher than the current domestic mark.
“The only thing that could bring down Australia’s future gas prices is a change in the world price, and there is no way we will produce enough gas to do have an impact on the wider market.”
Speaking to The Land late last year market analyst Geoffrey Cann - Deloitte’s national director for oil and gas - said opening up Queensland supply to the international market would increase gas prices.
“There is not going to be a shortage of gas – there is going to be a shortage of gas at the price people are willing to pay,” he said.
“Gas prices are set entirely by supply and demand – production in NSW won’t bring the price down.”
NSW customers pay between $3 and $4 a gigajoule, while in Asian markets one gigajoule costs about $15. The cost of processing and supplying gas to a buyer in major Asian markets is about $5 to $6 per gigajoule.
That means a local gas buyer could pay $9 a gigajoule to compete with international markets. This price differential, known as the netback price, will be marker for NSW’s future gas prices when exports commence, Mr Grudnoff said.
A report commissioned by the Australian Energy Market Commission, Gas Market Scoping Study 2013, supported this theme.
“The development of new sources of supply is unlikely to result in gas prices falling back to historic levels of $3 to $4/GJ.”
However, Mr Roberts said recent modelling showed the domestic gas price would moderate from a peak of $10-$12 (the export price) to $6-$8 as any NSW gas potentially came online.
"There could be potential for a significant reduction, potentially up to 50 per cent of the wholesale price, if domestic supply is developed," he said.
Santos vice-president James Baulderstone said the Narrabri project has the potential to supply as much as half of NSW current gas demands, and was confident it will lower prices.
“There is no doubt that bringing on more gas supply will put downward pressure on domestic gas prices,” Mr Baulderstone said.
“While there will be no change to either the existing approvals process or NSW's stringent regulatory conditions, the MoU helps to ensure that the NGP will be assessed within time frames that would enable gas to be delivered when it is most needed.”
Mike Foley
Senior journalist for The Land.
Senior journalist for The Land.
