Last week, Andrew Smith, Chairman of Shell Australia, suggested that NSW and Victoria may have to consider importing LNG from Queensland or Papua New Guinea if the states don’t act to get onshore gas out of the ground, took the ‘East Coast gas shortage’ argument to new heights of hysteria.

But as the Australian Electricity Market Operator has clearly stated, the demand for gas on the east coast of Australia has fallen and there is no gas shortage.

In fact, the global gas market is entering a large glut in supply – a glut that according to the Office of the Chief Economist will extend out to 2030.

The situation is somewhat worse for the Australian gas industry than even the gloomy official forecast, as growth in the key North Asian markets is faltering. In 2015 LNG demand from Australia’s key markets Japan, Korea and China contracted by 1.7% (-3MT).

The official forecasts out of Japan, our largest export market, and Korea, our third largest export market, are for those markets to continue contracting out to 2030.

What’s more, large global surpluses are being exacerbated by major increases in supply in the next four years.

Back in Australia, on the 9 April 2015, AGL Energy, one of the largest gas retailers, secured long-term supply gas supply agreements with BHP and Esso’s Bass Strait operations to get gas for its 1.5 million small business and residential customers out to 2020.

Rather than facing a shortage, AGL ended up with a surplus of gas that it has since on sold into the gas export market.

So what is going on? Living in a gas rich nation at a time of a global supply glut one would have thought in Australia, the domestic consumer would have a plethora of choices for cheap supply.

Not so, because what is effectively a cartel of gas producers is ensuring that domestic gas supply in Australia is rationed and prices kept well above comparable gas prices in offshore markets.

Currently, even our own export markets have cheaper gas available to them than we do in Australia.

The Shell Chairman’s suggestion we should construct a LNG facility in Sydney to import LNG is undoubtedly economic insanity. Any analyst with an iota of common sense could tell you the gas he wishes to ship into Sydney – when we have ample supply from the Bass Strait – would be prohibitively expensive.



But there is method in the madness.

It is a strategic move to try to further leverage up the domestic price to above the level being paid by our export customers.

The industry is doing so in order to get our domestic gas consuming industries to pay for the expensive and energy intensive LNG process that they do not utilise.

Sadly, it’s a ruse which our political class has fallen for hook line and sinker.

Bruce Robertson is an analyst for the Institute for Energy Economics and Financial Analysis. He has been an investment analyst, fund manager and professional investor in Australia for over 32 years. He has worked for major domestic and international institutions including Perpetual Trustees, UBS, Nippon Life Insurance and BT.