Gas industry has itself to thank for higher prices – Matt Grudnoff

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ABC - The Drum

Coal seam gas protesters shouldn't be blamed for rising gas prices in Australia - for that, the gas industry can thank only itself, writes Matt Grudnoff.

The Australian Petroleum Production and Exploration Association (APPEA) is blaming opposition to coal seam gas for the coming rise in gas prices in the below comments published in yesterday's Daily Telegraph.

Australian Petroleum Production and Exploration Association of Australia's chief operating officer Rick Williams warned today's decision would be just the start for householders on gas prices, partly because of opposition to coal seam gas.

"For this, they have local anti-CSG activists to thank," he said.

APPEA's argument is that there is a shortage of gas in Australia and so we need new gas production to stop the price rise. They conveniently forget to explain why there is a shortage of gas. People might be forgiven for thinking it's because Australia's demand for gas is on the rise.

The Australian Energy market operator has reported a drop in demand for gas in New South Wales from both industry and households. So, where is the increase in demand coming from? Three huge gas liquefaction plants that are currently under construction in Gladstone. These will be used to export gas from Australia to the rest of the world.

When they are completed in the next few years, Australia's east coast gas market will, for the first time, be linked to the rest of the world. Currently the world gas price is about four times higher than Australia's east coast gas price. This is because Australia produces a lot of gas and doesn't demand a huge amount. High supply and low demand leads to lower prices.

When the Gladstone gas plants are finished, Australian gas producers will be able to sell gas overseas at the higher world price. If Australians want gas, they will have to pay the higher world price minus the cost of liquefying and transporting it.

The linking with the world price means that if Australia develops lots of new CSG gas fields, we will still pay the world price. If we don't develop new CSG gas fields, we will still pay the world price. Put simply, more gas development is not going to have any real influence on the gas price we're going to pay.

A lot of people have real concerns about the effect that CSG might have on water, soil and the environment. AGL Energy recently put its application to develop coal seam gas wells in western Sydney on hold, after encountering strong community opposition. Greenies weren't the only ones that were concerned. Ordinary Australians were worried about what effect the development would have on their communities.

Just as those in Western Sydney were worried, so too are people living in rural areas. People are concerned about CSG development near their houses and farms. In fact, there so much community concern that the NSW government has acted to limit CSG development.

It is completely understandable that gas companies want to export overseas. The much higher gas prices means bigger profit and in our market economy, we assume that firms will pursue these higher profits. It is also understandable that gas companies will want to develop new gas projects. With the higher prices a lot of new projects will now be profitable.

But what is not OK is for APPEA (a lobby group of the gas producers) to blame concerned Australians for the gas price increases - price increases that are being driven by the industry's desire to sell gas overseas.

APPEA should spend more time looking into safety concerns about CSG and how they can fix them, and less time demonising ordinary Australians.

Matt Grudnoff is a senior economist at The Australia Institute.