We all agree that gas prices are going to rise. The Australian Petroleum Production and Exploration Association (APPEA) would have you believe that the restrictions on coal seam gas (CSG) in NSW are the cause of the coming price hikes. Ironically, it’s not the lack of CSG that is driving up the price but the explosion in CSG production that will see wholesale gas prices double or triple over the next few years.
Gas prices in eastern Australia are low by world standards because at the moment they are not linked to prices in the rest of the world. This will change next year with the completion of the first of three large LNG facilities near Gladstone. After this, gas producers will be able to choose to sell to domestic consumers or liquefy and ship their gas to international buyers. The eastern Australian gas market will be linked to the world market and the world price.
While wholesale gas prices in the eastern market have recently been around $3 or $4 per gigajoule, they are expected to rise in the next year or so to the export parity price of $9 per gigajoule. These massive LNG facilities will dramatically increase demand for gas. When all three are finished they will have a combined capacity that is twice the 2011 domestic demand in the eastern gas market.