Implications of LNG exposure on the competitiveness of Australia

Abstract

Australia’s eastern gas market has historically been one of low prices and stable, long-term contracts. The development of coal seam gas (CSG) and the construction of Queensland’s three CSG to LNG projects is driving a tripling of gas production in eastern Australia and changes to historical patterns and directions of gas flows throughout the market. This transition from an isolated market to one linked to international LNG markets, coinciding with the unwinding of many legacy contracts, is leading to unprecedented change and will have profound effects on all participants. This extended abstract considers the implications of LNG exposure on the competitiveness of Australia’s eastern gas market. It will draw on the expertise of the gas market specialists in the Office of the Chief Economist, and the oligopolistic model of the market, to consider impacts on supply, demand, price, and the level of competition in various sectors of the market. One of the initial findings is that the volatility of global LNG spot prices is likely to have a significant impact on both gas production and demand in east Australia, given the scale of LNG exports relative to the eastern market. The extended abstract explores a range of LNG demand scenarios for the eastern gas market. It will emphasise the fundamental importance of expanded gas production on market outcomes, and the need for ongoing gas exploration and development to support the market through the transition.