A new research paper released by AGL’s senior economists warns that NSW could face up to 21 days of gas supply shortages from the winter of 2016.

The paper suggests that the shortages could cause significant disruption to the NSW manufacturing industry if they occur.

Solving for ‘x’ – the NSW Gas Supply Cliff, is written by AGL’s Chief Economist Professor Paul Simshauser and Head of Economic Policy and Sustainability Tim Nelson. They used modelling to produce estimates of daily demand and supply throughout each year, which is necessary as winter daily gas demand is double that of summer due to the increased use of gas for heating homes and businesses.

The paper highlights that while households and small businesses are unlikely to experience shortages, large industrial users of gas may be asked to cease gas consumption on the days where supply cannot meet demand.

The paper also looks at possible solutions to the issue. One possible solution is AGL’s Newcastle Gas Storage Facility at Tomago, which is currently under construction and scheduled to be fully operational by mid 2015.  Another possible solution involves producing more gas domestically through new gas developments such as AGL’s Glocester project.

While not stated in this paper, an economic benefits assessment suggests that the highest gas users in Greater Newcastle region contribute to approximately $2 billion to the local economy and a gas supply shortage would cost the region $5.5 million a day.

Mr Nelson said this reinforced the need to explore and produce gas in NSW, for NSW.

“Our new storage facility in Newcastle will clearly help any potential gas supply shortage by having the capacity to hold 30,000 tonnes of liquefied natural gas which can be re-directed to the Greater Newcastle area in the winter months when demand is higher,” Mr Nelson said said.

“NSW is the only state which is not self-sufficient in gas, with only five percent of the state’s needs currently being produced at AGL’s Camden Gas Project. We need to increase our local gas supplies to ensure security of gas supply for the state.”

“By producing gas at Gloucester we can bolster NSW locally sourced gas supply to 20 percent of demand. AGL confirms that all of the natural gas produced from Gloucester will be delivered to NSW customers and not exported.”

Mr Nelson said if there is not enough gas in the peak winter period from 2016, the NSW Government could also be forced into making a decision about gas curtailment to around 50 ‘large gas consuming sites’– many of which are in Sydney’s western suburbs.

“The high risk of shortages identified for ‘large gas consuming sites’ could result in some manufacturers being forced to cease production resulting in associated unemployment,” he said.

“Solving for ‘x’ identifies a number of areas in Western Sydney as having a high proportion of the sites that could be curtailed in a gas shortage.”

The paper explains that NSW is vulnerable to a gas supply shortage because NSW produces so little of its own gas and is therefore reliant upon gas from Queensland, South Australia and Victoria.

However the Eastern Gas Pipeline bringing gas from Victoria is too small (even with expansion) to meet all of NSW’s peak winter gas demand on its own, and it’s unlikely that Queensland and South Australian gas via the Moomba pipeline will be available for the Sydney market. Instead, it will flow to Queensland to supply the large LNG export loads, the paper states.

“As LNG development comes online, a significant number of existing domestic gas contracts currently supplying NSW will expire with much of that gas being re-contracted to LNG producers in Queensland, therefore creating a gas supply cliff in NSW,” he said.

Solving for ‘x’ – the NSW Gas Supply Cliff research paper is available on the AGL Blog, accessible at aglblog.com.au.