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

Tim Nelson ()

Economic Analysis and Policy, 2018, vol. 59, issue C, 103-112

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.

Keywords: Energy; Gas markets; LNG; Partial equilibrium (search for similar items in EconPapers)
JEL-codes: D04 D47 Q40 Q41 Q48 (search for similar items in EconPapers)
Date: 2018
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