Success in the Australian domestic gas market will depend on future policies and prices, according to the the Chief Economist of the Department of Industry Innovation and Science.
The comments were made in the recently released Gas Market Report 2015 report, which also highlights the need for Government policy action to provide a level playing field for gas.
The report explores domestic and international gas market issues. On the domestic side, it provides an analysis of the state of the eastern Australian gas market, and how the exposure to international liquefied natural gas (LNG) markets is likely to impact demand.
Internationally, the report provides an assessment of the transitions underway in LNG markets and outlooks for supply and demand.
The report said the increased volumes of gas demanded by LNG projects, combined with the higher costs of extracting coal seam gas (CSG), has led to an increase in gas prices in the Australian eastern gas market, and has contributed to the subsequent reduction of domestic gas demand.
The report said domestic demand is also forecast by the Australian Energy Market Operator (AEMO) to continue to decline, particularly in the gas powered electricity generation (GPG) and industrial sectors.
Energy Networks Association (ENA) CEO, John Bradley, said the rapid transformation in the gas market made it essential that Australia’s domestic gas customers were protected by good energy and carbon policy.
“This report highlights how important government policies will be to whether a golden age of gas emerges, supporting the global transition to a clean energy economy,” Mr Bradley said.
“While Australia will be the world’s largest LNG exporter by 2020, Australia’s domestic gas use could fall by 23 per cent by 2024 due to increasing wholesale prices, a declining manufacturing sector and government policy settings which undermine the competitiveness of gas.”
The report states that demand for gas in the residential and commercial sector would grow by seven per cent over the period to 2024, despite increasing wholesale prices.
“Our homes and businesses rely on gas for cost-effective, low emission and convenient hot water heating, space heating and cooking – which is why we need emissions abatement policies that allow all low emission technologies to play their role in a clean energy transition,“ Mr Bradley said.
Mr Bradley said the outdated Small-scale Renewable Energy Scheme still distorts appliance markets by subsidising abatement from solar hot water and heat pump technologies, but not abatement from gas appliances.
“The Scheme is outdated since the technologies it supports are readily recognised as being commercially attractive without the subsidy,” Mr Bradley said.
“Australia also needs a level playing field in electricity generation markets and to remove unnecessary regulatory barriers to developing unconventional gas resources.
“Low emission, responsive gas-fired generation is vital to supporting the ups and downs of renewable generation. Instead, we see it being squeezed out by carbon abatement policies that are not technology neutral.”
Mr Bradley said the report highlights that southern gas markets in Victoria, New South Wales, Tasmania and South Australia will have insufficient reserves to meet long-term supply requirements without developing new NSW CSG reserves, further discoveries in Victoria or imports from the north.
“Australia’s domestic gas security and economic growth will depend on governments removing unnecessary moratoria and regulatory barriers to the development of these resources.
The Gas Market Report 2015 states, “However, the consumption of natural gas has always been a discretionary decision, unlike the utilisation of electricity. Natural gas is valued for its premium, clean-burning properties which make it particularly suitable for domestic space and water heating, and for process heating in the industrial sector.”