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East-coast Australian gas markets—Overcoming the lumpiness of capital allocation and temporal instability

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  • Nelson, Tim

Abstract

Australia’s east-coast gas market has undergone significant transformation in the past decade. The discovery of non-conventional coal-seam gas reserves led to investment in three ‘lumpy’ LNG export facilities in Gladstone, Queensland. Drilling activity has subsequently slowed, a direct result of a soft global price for LNG. This slowdown, in an environment of a tripling of east-coast gas demand, has resulted in concerns about domestic gas shortages. To be clear, there is no lack of gas resources. Instead, the problem relates to the relative lumpiness of capital allocation and temporal instability driven by changing global circumstances. Utilising a simple partial equilibrium model, various options for overcoming these problems are analysed. Of these options, developing import infrastructure appears to be a ‘no regrets’ option that would ensure that the price floor, the LNG netback price, also becomes the market price cap.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:ecanpo:v:59:y:2018:i:c:p:103-112
    DOI: 10.1016/j.eap.2018.05.002
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    References listed on IDEAS

    as
    1. Paul Simshauser & Tim Nelson, 2015. "The Australian east coast gas supply cliff," Economic Analysis and Policy, Elsevier, vol. 45(c), pages 69-88.
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    More about this item

    Keywords

    Energy; Gas markets; LNG; Partial equilibrium;
    All these keywords.

    JEL classification:

    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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