A new report predicts the domestic price of liquefied natural gas could triple due to the surge of exports to Asia.
With Queensland gas fields due to begin exporting in two years, the Australian Industry Group (AIG) and the Plastics and Chemicals Industries Association (PACIA) are concerned that the price rises will hurt local businesses.
In Western Australia, a portion of gas reserves are set aside for domestic use. This is not the case, however, in Queensland. LNG in Asia can fetch as much as $16 per gigajoule but households and businesses in Australia only pay a quarter of that. Therefore, when exports start to leave in 2014, the AIG and PACIA say, the likely result is domestic gas prices will begin to skyrocket.
“This increase would be several times larger than the costs related to carbon pricing, for instance,” said AIG chief executive Innes Willox. ” This is a major issue for Australia’s national interest, it’s a major issue related to job security going forward, it’s a major issue related to the development of new advanced manufacturing and value add industries within Australia.”
Willox said the AIG and PACIA have had concerns for some time that the gas boom would have unintended consequences and that these consequences were being dismissed.
“Where there has been debate at all, it has centred on the shortcomings of possible responses such as gas reservation, rather than on the nature of the problem itself,” he said. “While we are strong supporters of Australia’s minerals and gas exports, there is a need for public recognition and discussion of the risks, and debate over what steps can be taken to best manage them.”
PACIA chief executive Margaret Donnan noted that the report underscores overlooked details regarding the ready availability of gas.
“Like the Prime Ministers’ Task Force on Manufacturing and the Queensland Government’s recent Gas Market Review, the report highlights that major gas users currently face great difficulty in securing supply,” she said.
Another factor to be considered is the environmental cost of exporting Australian LNG.
Gas accounts for just under a quarter of Australia’s total energy mix and is used primarily by the manufacturing sector. Consumption is predicted to rise to around 35 per cent by 2035.
The Australian Petroleum Production and Exploration Association predicts Australia will be the largest liquefied natural gas exporter within eight years and promotes gas as a greener energy source compared to coal. The impact of rising gas prices, however, could push producers away from using it.
Among the report’s findings:
- Gas supply may be insufficient to avoid constraining domestic use
- Each petajoule of gas shifted away from industrial use towards exports means giving up $255 million in lost industrial output for a $12 million gain in export output. That is, for every dollar gained, $21 is lost
- Gas exports are predicted to rise from 2 million tonnes in 2015 to up to 24 million tonnes in 2023
- Long-term gas supply contracts have evaporated for local industry as a consequence of export commitments
- East coast gas prices will rise, potentially to as much as triple the current $3-$4 per gigajoule
- Current policy settings favour exports over domestic gas sales.
“Australia needs to remain a safe destination for investment and to make the most of our export opportunities,” Donnan said. “Indeed, it is important for all governments to remove unnecessary barriers to the increased production of gas from the unconventional resources that can now be safely accessed. But we also need to understand the real economic risks associated with the export of Australia’s East Coast natural gas resources and that is the purpose of this report.”