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Australia's coal seam gas boom and the LNG entry result

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  • Paul Simshauser
  • Tim Nelson

Abstract

type="main" xml:id="ajar12117-abs-0001"> Queensland experienced extraordinary growth in booked 2P coal seam gas (CSG) reserves, rising from 3,400 PJ in 2005 to 41,200 PJ in 2013. Given annual domestic consumption of ca. 700 PJ/a, 2P reserves rapidly shifted from 14 to 72 years supply. Profit-maximising firms sought to speed up commercialisation of reserves through the development of three liquefied natural gas (LNG) export plants at Gladstone. In this article, we present forecasts of Australia's east coast interconnected gas system with daily resolution using our dynamic partial equilibrium model. Modelling results show the rapid development of LNG plants combined with restrictive CSG development policies in NSW may result in unserved load from 2016. Relaxing development constraints or delaying construction of one LNG terminal by 1 year could have avoided the risk of Unserved Load events in the domestic gas market. Lessons can be learned from this CSG-LNG boom scenario. Facilitating new gas supplies is the most efficient way of alleviating the impacts of the CSG-LNG boom on domestic markets in the medium term. In the long-term, Australian policymakers may consider the merits of a National Net Benefits Test to maximise welfare through appropriate coordination – as is done by policymakers in the USA – as opposed to protecting local industries through ‘domestic gas reservation policies’.

Suggested Citation

  • Paul Simshauser & Tim Nelson, 2015. "Australia's coal seam gas boom and the LNG entry result," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 59(4), pages 602-623, October.
    • Handle: RePEc:bla:ajarec:v:59:y:2015:i:4:p:602-623
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    File URL: http://hdl.handle.net/10.1111/ajar.2015.59.issue-4
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    Cited by:

    1. Tim Nelson & Fiona Orton & Tony Chappel, 2018. "Decarbonisation and wholesale electricity market design," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 62(4), pages 654-675, October.
    2. Jotzo, Frank & Mazouz, Salim, 2015. "Brown coal exit: A market mechanism for regulated closure of highly emissions intensive power stations," Economic Analysis and Policy, Elsevier, vol. 48(C), pages 71-81.
    3. Graham, Paul W. & Brinsmead, Thomas & Hatfield-Dodds, Steve, 2015. "Australian retail electricity prices: Can we avoid repeating the rising trend of the past?," Energy Policy, Elsevier, vol. 86(C), pages 456-469.
    4. Simshauser, Paul, 2018. "Price discrimination and the modes of failure in deregulated retail electricity markets," Energy Economics, Elsevier, vol. 75(C), pages 54-70.
    5. Simshauser, P. & Gilmore, J., 2018. "On entry cost dynamics in Australia’s National Electricity Market," Cambridge Working Papers in Economics 1875, Faculty of Economics, University of Cambridge.
    6. Simshauser, Paul, 2018. "Garbage can theory and Australia's National Electricity Market: Decarbonisation in a hostile policy environment," Energy Policy, Elsevier, vol. 120(C), pages 697-713.
    7. Andrew Curtis & Benjamin McLellan, 2023. "Framework for Assessment of the Economic Vulnerability of Energy-Resource-Exporting Countries," Resources, MDPI, vol. 12(2), pages 1-38, February.
    8. Nelson, Tim, 2018. "East-coast Australian gas markets—Overcoming the lumpiness of capital allocation and temporal instability," Economic Analysis and Policy, Elsevier, vol. 59(C), pages 103-112.
    9. repec:ags:aare16:235308 is not listed on IDEAS
    10. Paul Simshauser, 2021. "Lessons from Australia's National Electricity Market 1998-2018: strengths and weaknesses of the reform experience," Chapters, in: Jean-Michel Glachant & Paul L. Joskow & Michael G. Pollitt (ed.), Handbook on Electricity Markets, chapter 9, pages 242-286, Edward Elgar Publishing.
    11. Simshauser, Paul, 2018. "On intermittent renewable generation & the stability of Australia's National Electricity Market," Energy Economics, Elsevier, vol. 72(C), pages 1-19.
    12. Simshauser, Paul, 2019. "Missing money, missing policy and Resource Adequacy in Australia's National Electricity Market," Utilities Policy, Elsevier, vol. 60(C), pages 1-1.
    13. Billimoria, Farhad & Adisa, Olumide & Gordon, Robert L., 2018. "The feasibility of cost-effective gas through network interconnectivity: Possibility or pipe dream?," Energy, Elsevier, vol. 165(PB), pages 1370-1379.
    14. Fleming, David & Komarek, Timothy & Partridge, Mark & Measham, Thomas, 2015. "The Booming Socioeconomic Impacts of Shale: A Review of Findings and Methods in the Empirical Literature," MPRA Paper 68487, University Library of Munich, Germany.
    15. R. Quentin Grafton & Xunpeng (Roc) Shi & Ian Cronshaw, 2018. "“Making Cents” of the Eastern Australian Gas Market," Economic Papers, The Economic Society of Australia, vol. 37(1), pages 42-54, March.
    16. Measham, Thomas & Fleming, David & Schandl, Heinz, 2015. "A Conceptual Model of the Socioeconomic Impacts of Unconventional Fossil Fuel Extraction," MPRA Paper 68523, University Library of Munich, Germany, revised 24 Nov 2015.

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