Are restrictions on CSG causing gas prices to rise? > Check the facts

Are restrictions on CSG causing gas prices to rise? > Check the facts

Who: “If there is more gas, the basic rules of supply and demand will work. If there is more gas then the prices will become competitive.” Cheryl Cartwright, Chief executive of the Australian Pipeline Industry Association.

The claim: The removal of restrictions on Coal Seam Gas (CSG) will result in increased production which will cause gas prices to fall.

The facts: Wholesale gas prices in the eastern Australian gas market are about to increase from $3 to $4 per gigajoule to $9 to $10 per gigajoule. This price rise will occur because the eastern market is for the first time being linked to the world market with the construction of three large LNG plants near Gladstone in Queensland.

Discussion of evidence: The world gas price is currently far higher than the eastern market gas price. This is because in the eastern market there is currently no way to export to the rest of the world. As a result, plentiful supply relative to demand has meant that gas prices have remained low. Until recently wholesale gas prices in the eastern market have been as low as $3 per gigajoule while gas delivered to Japan in the Asian market has been as high as $15 per gigajoule (this price includes liquefaction and transportation).

When the eastern gas market is linked to the world market, our gas prices will change when the world price of gas changes. This means for increases in supply to cause a decrease in price it would need to be large enough to lower the world price. Australia produces two per cent of the world’s natural gas and its product makes up about nine per cent of world LNG exports. If all restrictions on CSG were removed in Australia, it is not reasonable to assume that the increase in supply would be large enough to reduce the world price.

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