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16
Jun
2013

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Getting gas right: Australia’s energy challenge

Tony Wood and Lucy Carter

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The global gas revolution is poised to significantly raise bills for Australian households and some gas-using businesses, but government should resist calls to protect domestic households and businesses from high gas prices.

Getting gas right: Australia’s energy challenge finds that development of Australia’s liquefied natural gas export industry, which could be the world’s largest by the end of the decade, could lead to price rises for households of up to $170 a year.

For years local prices have been low by world standards, but when suppliers can get a higher price exporting than on the domestic market, the domestic price will rise to the export level. The change will not be popular, especially when electricity prices have also been rising, but it is a natural consequence of an evolving market.

Calls for a moratorium on new LNG developments or the reservation of a proportion of gas for domestic consumption are pleas for protectionism. They will lead to distorted price signals, inefficient industries, lower investment and, ultimately, higher prices.

The report examines the creation of an east coast gas export market – which will join with Western Australian exports to produce an estimated $50 billion-a-year industry by 2017 — and Australia’s role in a gas revolution created by surging demand in Asia and new discoveries of shale gas in the United States.

The report also examines Australia’s possible shortage of supply, arguing that government must resolve the impasse over coal seam gas in New South Wales, while industry must ensure that enough infrastructure is built to ensure that gas flows.

Governments should also move to create a more transparent and competitive market by accelerating the development of gas trading hubs, introducing a published price index, freeing up trading in pipeline capacity and more tightly constraining joint marketing arrangements by gas producers. For three decades, Australia has thrived from opening trade and removing protection. It should not turn the other way now.

Watch an interview with Tony Wood

Tony Wood writes about this report in The Australian Financial Review, Business Spectator and Crikey. Watch a Grattan TV interview with Tony Wood.