24 Dollars Per Gigajoule Is Irrational

The Most Expensive Gas In The World

24 Dollars Per Gigajoule For Natural Gas in NSW Is Irrational.

The price of natural gas in New South Wales has surged to unprecedented levels in 2024, reaching $24 per gigajoule (GJ), a 100% increase from the same time last year and it this seems quite irrational.

This significant increase has had a profound impact on manufacturing companies dependent on natural gas, forcing some to cease operations due to unsustainable production costs.

To understand the historical context and the percentage changes in natural gas prices over the past decade, below is a summary of the prices in June of each year and the corresponding percentage changes:

Historical Natural Gas Prices in NSW (June of Each Year).

Year

Price (AUD/GJ)

Up Or Down?

% Change

2014

$4.50

2015

$5.00

Up

11.10%

2016

$5.50

Up

10.00%

2017

$6.00

Up

9.10%

2018

$7.00

Up

16.70%

2019

$8.00

Up

14.30%

2020

$8.50

Up

6.30%

2021

$9.00

Up

5.90%

2022

$10.00

Up

11.10%

2023

$12.00

Up

20.00%

2024

$24.00

Up

100.00%

 

Factors Contributing to the Price Surge In Natural

1.    Supply Shortages: There have been long-forecast shortages in gas supplies in the south-eastern states, including NSW, which have driven prices higher.

a.    This is despite the fact that the Santos Narrabri Gas Project has got enough Natural Gas underground there to supply 60% of NSW natural gas needs for the next 35 years.

b.    It seems that every time this project gets approved and the outlook for Natural Gas Supply in NSW looks to be encouraging, some new group pops up out of nowhere and then puts the brakes on this operation.

2.    Policy Changes and Market Dynamics: Policy changes, unexpected outages, and variations in generation sources have influenced market dynamics, leading to price fluctuations.

3.    Policy Failure: Some experts describe the situation as a “crisis decades in the making” and attribute it to a lack of rigorous monitoring and regulation of key energy markets in Australia.

The dramatic increase in natural gas prices in 2024, particularly the 100% rise from the previous year, underscores the volatility and challenges facing the energy market in NSW and the broader region.

Let’s Try To Understand The Rising Cost of Natural Gas in NSW.

The constantly increasing gas prices and in particular the massive jump over the last 12 months has left many residents and businesses grappling with higher gas and power bills and is now the centerpiece of most conversations around gas supply in NSW.

Over the course of this article, I’ll do my best to delve into the various factors contributing to the problem, the implications for consumers, and potential future developments.

By exploring the issues, I hope to shed some light on the complexities of the natural gas market and help readers better understand the forces at play.

Understanding the reasons behind the rising cost of natural gas is crucial for both consumers and policymakers.

The escalating prices can be attributed to a combination of factors, including increased demand, supply constraints, and global market dynamics.

Although I really do not believe that any factors outside of Australia should affect the cost of gas, given we have so much of it.

Australia has significant natural gas resources and below is how Australia’s natural gas resources compare to the rest of the world:

1.    Proven Reserves: As of 2017, Australia held 70 trillion cubic feet (Tcf) of proven gas reserves, ranking 27th in the world.

2.    Global Ranking: While Australia’s proven reserves rank 27th globally, it’s important to note that Australia has become a major player in gas production and export.

3.    Production Capacity: Australia ranks 16th in the world for gas production, producing about 2,384,328 million cubic feet annually.

4.    Export Status: Australia has recently overtaken Qatar to become the world’s largest exporter of liquefied natural gas (LNG). The country exports around 80 million tonnes of LNG per year, 81.1 million metric tonnes in 2023 and this generated revenue of 74.2 billion bucks.

5.    Resource-to-Production Ratio: Australia’s proven reserves are equivalent to 43.9 times its annual consumption, suggesting about 44 years of gas left at current consumption levels (excluding unproven reserves).

6.    Global Resource Share: Australia has an estimated 2% of the world’s natural gas resources. While this may seem small, it’s significant given Australia’s population size.

7.    Unconventional Gas: Australia also has substantial unconventional gas resources, including coal seam gas (CSG) and potential shale gas reserves. These resources could significantly increase Australia’s total gas reserves.

8.    Export Infrastructure: Australia has ten LNG production facilities across Western Australia, Queensland, and the Northern Territory, supporting its position as a major gas exporter.

9.    Future Potential: Geoscience Australia speculates that additional unconventional gas resources could yield an extra 753,000 petajoules (PJ) of gas, though only a fraction of this would be economically recoverable in the near future.

10. Domestic vs. Export Market: About 95% of Australia’s gas is produced from a few main geological basins, with a significant portion dedicated to export markets.

While Australia may not have the largest proven reserves globally, its efficient production, export infrastructure, and potential for unconventional gas resources have positioned it as a major player in the global natural gas market, particularly in terms of exports.

Whichever way you slice it, Australia has got enough gas under our feet to not have our cost per gigajoule of natural gas affected, and especially in NSW where we’ve got an estimated 1.8 trillion cubic feet (TCF) of natural gas sitting under the ground there just waiting for us to grab it.

So as we examine the price dynamics information via this article, I will hopefully not only elucidate the underlying causes but also provide insights into potential mitigation strategies.

As we navigate through these questions, we will explore how these cost increases are affecting households, businesses, and the broader economy. My goal is to equip you with the knowledge needed to make informed decisions and adapt to this evolving energy landscape.

As I delve into the pressing issues, I be unraveling the complexities of the natural gas market in NSW and offering a clearer perspective on what lies ahead.

What are the Most Significant Challenges Facing the Gas Industry Today?

The natural gas industry is currently navigating a complex landscape marked by several significant challenges.

One of the primary obstacles is supply constraints. These constraints arise from various factors, including geopolitical tensions, natural disasters, and aging infrastructure.

The limited supply has created a bottleneck, making it difficult to meet the increasing demand for natural gas.

Increased demand is another major challenge, driven by the global shift toward cleaner energy sources.

Natural gas is now identified as the best and greenest interim way to generate electricity for a lot of countries (not Australia of course) whilst they wait to go nuclear.

With gas now being so popular, this surge in demand has put additional pressure on already strained supply chains, leading to higher prices and potential shortages.

Regulatory changes also pose a significant hurdle for the natural gas industry. Governments worldwide are implementing stricter environmental regulations to combat climate change. This is a major factor in Australia, as the Australian Oil & Gas industry is the most heavily regulated industry in the world, that’s not just O&G Industries, that’s all global industries.

The extensive regulatory requirements placed on oil and gas companies in Australia significantly contribute to the cost per gigajoule of natural gas, as explained below:

1.    Regulatory Burden: As the Australian Oil & Gas industry is the most heavily regulated industry globally, creates a substantial compliance cost.

a.    Companies like Santos have to invest heavily in meeting these stringent regulations, which inevitably affects their operational costs and cost of the gas they push into the national gas transmission network and then the cost to us consumers.

2.    Environmental Regulations: The emphasis on combating climate change, for which Australia bears 1% responsibility, through insanely stringent environmental regulations adds another layer of complexity and cost.

a.    This could include requirements for emissions reductions, environmental impact assessments, and investments in cleaner technologies.

3.    Red and Green Tape Compliance Costs: The combination of administrative burdens (red tape) significantly slows down every single aspect of trying to bring a new gas extraction operation online and the overhead costs associated with governance over those processes every year.

a.    Gas companies need to employ vast amount of additional personnel to handle the Red and Green tape and yes, all of this adds to operational costs and the cost of gas heading into the national pipeline.

4.    New Gas Project Delays: Overly stringent regulations leads to delays in project approvals and implementations, which then also increases costs due to extended timelines and uncertainty.

a.    Whist Gas Companies wait for approvals, they are employing a lot of people in the hope that their project will get green lit.  

b.    As you can imagine, this adds to the cost of their overall operations and the costs per unit of gas they charge.

5.    Limited Exploration and Production: Overly strict regulations limit areas available for exploration and production, reducing supply options and driving up gas prices.

6.    Investment Deterrence: High regulatory costs deters some companies from entering or expanding in the market, reducing competition and efficiency, after all, who would want to go through all of this in rigmarole?.

7.    Technology Implementation: Requirements for cleaner, more efficient technologies drives up initial investment costs and adds to the cost of operations.  Although this is actually a cost that they may get back over time with return on investment.

Regulations are extremely important when it comes to ensuring safety but I think the problems heavily lie in what some agencies work out as essential mechanisms for protecting the environment and addressing climate change.

I don’t think Oil & Gas companies blink an eye about the costs and actions associated with doing all of the sensible regulations but it must be hard for them to have to zip their lip and abide by a lot of the frivolous Green And Red Tap regulations.  Especially when they know all of this will contribute significantly to the cost structure of their natural operations and ultimately, the cost of their finished product.

This regulatory environment is indeed likely to be a major factor in the pricing of natural gas per gigajoule in Australia.

Companies in the natural gas industry are doing their best to adapt to these challenges through various strategies.

Innovation plays a crucial role, with advancements in technology helping to improve efficiency and reduce emissions.

Strategic partnerships are also essential, enabling companies to share resources and expertise to overcome supply constraints and regulatory hurdles.

Furthermore, operational improvements, such as upgrading infrastructure and optimizing supply chains, help mitigate some of the challenges faced by the industry.

Overall, the natural gas industry in Australia is at a pivotal moment, requiring a delicate balance between meeting demand, complying with regulations, and addressing environmental concerns.

By embracing innovation and collaboration, companies will hopefully be able to navigate these challenges and contribute to a more sustainable energy future.

Balancing Demand for Natural Gas with The Amount Of Green & Red Tape.

The natural gas industry in New South Wales faces the dual challenge of meeting rising demand while addressing the most green and red tape that is imposed on any company in the world.

As the demand for natural gas continues to increase, the industry is actively seeking ways to get through all of the hurdles and try to get more gas in the pipeline, which will drive down the cost per gigajoule of gas.

Addressing Volatility in Gas Prices in NSW.

The volatility in natural gas prices is a multifaceted issue driven by several interrelated factors.

One of the primary contributors is seasonal demand variations. During the colder months, the demand for natural gas typically surges as households and businesses use more energy for heating.

Conversely, demand often diminishes in the warmer months, leading to price fluctuations. These seasonal patterns can create significant discrepancies in natural gas prices over the course of a year.

Geopolitical tensions also play a critical role in influencing natural gas prices. For instance, political instability in key gas-producing regions can disrupt supply chains and increase prices.

Conflicts or diplomatic disputes can lead to sanctions or embargoes, further constraining the availability of natural gas on the global market.

Additionally, the strategic maneuvering of major natural gas exporters, such as Russia, can impact global supply and pricing structures.

Supply chain disruptions are another significant factor contributing to the volatility of natural gas prices.

Events such as natural disasters, technical failures, or logistical issues can impede the extraction, processing, and transportation of natural gas.

These disruptions can create immediate shortages and drive up prices as markets scramble to fulfill demand with limited supply.

To manage this volatility, companies employ several strategies. Long-term contracts are a common approach, providing price stability and securing supply over extended periods.

These agreements can buffer against short-term fluctuations, ensuring a consistent supply at predictable prices.

Hedging is another strategy utilized by companies to mitigate risk. Through financial instruments and derivatives, companies can lock in prices for future delivery, protecting themselves from unexpected price spikes.

This financial strategy allows businesses to budget more effectively and avoid the adverse impacts of volatile market conditions.

Diversification of supply sources is also crucial in managing natural gas price volatility. By sourcing natural gas from multiple regions and suppliers, companies can reduce their dependence on any single source.

This strategy minimizes the impact of regional disruptions and ensures a more stable supply chain.

Overall, understanding and addressing the factors contributing to natural gas price volatility is essential for both companies and consumers.

By employing strategies such as long-term contracts, hedging, and diversification, companies can navigate the complexities of the natural gas market and mitigate the risks associated with price fluctuations.

The Role of Natural Gas in the Transition to a Low-Carbon Economy.

Natural gas is increasingly recognized as a pivotal element in the transition to a low-carbon economy.

As a cleaner alternative to coal, it emits significantly lower levels of carbon dioxide when burned as well as zero sulfur oxides, nitrogen oxides, particulates or potentially toxic trace elements.

The only byproducts of burning methane is CO2 and Water, that’s it.

 So natural gas fuelled simple cycle and combined cycle power stations are leading the way for a reduction of greenhouse gas and other emissions.

This makes natural gas an effective bridge fuel, capable of facilitating the shift away from more carbon-intensive energy sources while advanced nuclear energy technologies continue to advance and scale.

One of the most promising aspects of natural gas in this transition is its potential role in hydrogen production.

Hydrogen is heralded as a future cornerstone of a low-carbon economy due to its versatility and zero-emission profile when used.

Currently, the most economical method of producing hydrogen is through steam methane reforming (SMR) of natural gas.

This process, however, does produce carbon dioxide as a byproduct, of which the plants then turn into oxygen for us as follows:

·        During photosynthesis, plants take in carbon dioxide (CO2) and water (H2O) from the air and soil.

·        Within the plant cell, the water is oxidized, meaning it loses electrons, while the carbon dioxide is reduced, meaning it gains electrons.

·        This transforms the water into oxygen and the carbon dioxide into glucose. The plant then releases the oxygen back into the air, and stores energy within the glucose molecules.

Efforts are underway to additionally mitigate this through carbon capture and storage (CCS) technologies, which can significantly reduce the overall carbon footprint of hydrogen production.

Furthermore, the natural gas industry is actively supporting the development and deployment of hydrogen technologies and infrastructure.

Investments are being made to upgrade existing natural gas pipelines and storage facilities to be hydrogen-compatible.

This is crucial for the eventual shift to a hydrogen-based energy system, as it leverages the extensive and well-established natural gas infrastructure to expedite the transition.

In addition to infrastructure upgrades, there is ongoing research into blending hydrogen with natural gas.

This approach can gradually introduce hydrogen into the energy mix, reducing carbon emissions progressively while addressing current technological and economic limitations.

Such initiatives are essential, as they provide a pragmatic pathway to a sustainable energy future without abrupt disruptions.

Natural gas plays a vital role in the transition to a low-carbon economy. Its ability to serve as a Nuclear bridge fuel, coupled with its contributions to hydrogen production and infrastructure development, underscores its importance in the evolving energy landscape.

The Impact of Regulatory Changes on the Gas Industry.

The natural gas industry in New South Wales (NSW) has been significantly influenced by a series of regulatory changes aimed at addressing environmental concerns, safety standards, and market efficiency.

One of the most prominent regulatory shifts is the introduction of carbon pricing mechanisms.

Carbon pricing, designed to reduce greenhouse gas emissions, imposes a cost on carbon emissions, thereby incentivizing gas companies to adopt cleaner technologies and more sustainable practices.

While this overly excessive policy somewhat aligns with global efforts to mitigate climate change, it also increases operational costs for gas producers, which can translate into higher prices for consumers.

Emissions standards have also evolved, with stricter limits being enforced on the amount of pollutants that can be released into the atmosphere.

These standards necessitate the adoption of advanced emission control technologies and processes, further adding to the operational costs for gas companies.

For instance, the implementation of the National Greenhouse and Energy Reporting (NGER) scheme requires companies to meticulously monitor and report their emissions, ensuring compliance with national objectives.

Non-compliance with these regulations can result in substantial fines and reputational damage, underscoring the importance of adherence.

Potential for Natural Gas in Emerging Markets.

Emerging markets present significant opportunities for the natural gas industry, driven by several key factors including urbanization, industrialization, and expanding energy access initiatives.

As urban populations grow, the demand for reliable and efficient energy sources increases, positioning natural gas as a critical component of the energy mix.

This trend is particularly evident in regions undergoing rapid urban development, where the need for sustainable and clean energy solutions is paramount.

Industrialization further amplifies the demand for natural gas, as industries seek cleaner alternatives to traditional fossil fuels.

Natural gas is increasingly viewed as a viable option due to its lower carbon footprint and versatility in various industrial applications.

This shift is supported by government policies and incentives that promote the use of cleaner energy sources, fostering an environment conducive to the growth of the natural gas sector.

Energy access initiatives play a crucial role in expanding the reach of natural gas in emerging markets.

Many countries are prioritizing the extension of energy networks to underserved areas, recognizing the importance of energy in driving economic development and improving quality of life.

Natural gas, with its relatively lower emissions and cost-effectiveness, is a preferred choice for expanding energy access, particularly in regions with limited infrastructure.

To capitalize on these growth drivers, companies in the natural gas industry are implementing various strategies to expand their presence in emerging markets.

This includes investing in infrastructure development, such as pipelines and storage facilities, to ensure a reliable supply chain.

Partnerships and collaborations with local entities are also crucial, enabling companies to navigate regulatory landscapes and cultural nuances effectively.

Technological advancements are enhancing the efficiency and safety of natural gas extraction and distribution, making it a more attractive option for emerging markets.

Companies are leveraging innovations in exploration and production techniques, alongside digital technologies, to optimize operations and reduce costs. These efforts are essential in positioning natural gas as a cornerstone of energy development in emerging markets, meeting the growing demand while adhering to sustainability goals.

What Do We Need To Happen Today, Is There A Short Term Fix?

The approval and operation of Santos’ Narrabri gas project should have a very positive impact on natural gas prices in NSW as follows:

1.    Increased Supply: Once the Narrabri project starts adding a significant amount of gas to the NSW market, it will help to bring down prices by increasing overall supply. This follows the basic economic principle that increased supply, all else being equal, tends to lower prices.

2.    Local Production: The Narrabri project would provide a local source of gas for NSW, potentially reducing transportation costs and reliance on gas from other states or imports. This should also contribute to lower prices.

3.    Market Dynamics: The actual impact on prices will depend on how much gas the project produces relative to total NSW demand, it will take them some time to ramp up to maximum production.  It should have an increasingly positive affect as they increasingly supply the pipeline.

It’s not all beer and skittles though; there are some factors that could actually prevent this extra gas from providing lower gas prices as follows:

1.    Export Market Influence: Given Australia’s significant role in the global LNG market, the impact on local prices might be moderated by international demand and prices. If the new supply can be exported at higher prices, it probably won’t translate to significantly lower domestic prices.

2.    Regulatory Environment: The strict regulatory environment I mentioned earlier would still apply to the Narrabri project, potentially keeping production costs relatively high and these costs will be passed through to us consumers no doubt.

3.    Long-term Contracts: Existing long-term gas supply contracts might limit the immediate impact of new supply on market prices.

4.    Infrastructure Considerations: The capacity of existing pipeline infrastructure to accommodate and distribute the additional gas would also play a role in how quickly and effectively the new supply could influence prices.

While the addition of around 850 new wells producing much needed natural gas from the Narrabri project would likely increase gas supply in NSW, it’s overly simplistic of me to assume it would automatically and significantly bring down the cost per gigajoule of gas.

The impact would be determined by how all of these factors interact; however, it is important to note that energy markets are overly complex and influenced by far too many variables other than local supply.

Factors such as global energy trends, policy changes, and technological advancements in renewable energy could all play a role in future gas prices.

Getting the Narrabri project up and going very quickly could potentially help to moderate gas prices in NSW by increasing domestic supply.

The extent of any positive effect would depend on numerous market and regulatory factors, and it’s unlikely to be a simple or immediate solution to high gas prices.

What Could Be Done By The State or Federal Government?

I don’t know if it would even be possible but I do wonder if the Australian Federal Government or the NSW State Government could potentially intervene with any existing contracts that Santos might have to send this gas from Narrabri overseas as LNG.

I wonder if either level of government could restrict this desperately needed gas for domestic use only?

Such an action would be significant but probably not without consequences.

This type of intervention is often referred to as enacting a “domestic gas reservation policy” or using “gas trigger” mechanisms.

Below are some thoughts on this possibility:

1.    Legal Framework: The Australian government has the power to intervene in gas exports under the Australian Domestic Gas Security Mechanism (ADGSM), often called the “gas trigger.”

a.    This mechanism was introduced in 2017 to ensure sufficient gas supply for domestic users.

2.    National Interest: The government could justify such an intervention on the grounds of national interest, citing the need to secure domestic energy supply and manage energy costs for Australian consumers and businesses.

3.    Precedent: While the gas trigger has not been fully activated to my understanding, the threat of its use has influenced gas companies to increase domestic supply in the past.

4.    State-Level Action: Some states, like Western Australia, already have domestic gas reservation policies in place, requiring a percentage of gas produced to be reserved for the local market.  WA has some of the cheapest natural gas in the world.

5.    Economic Impact: Restricting exports could potentially lower domestic gas prices by increasing local supply. However, it could also have negative economic consequences, such as:

a.    Reduced revenue from gas exports

b.    Potential damage to Australia’s reputation as a reliable trading partner

c.    Possible legal challenges from companies with existing export contracts

6.    International Relations: Such a move could strain relationships with countries that rely on Australian gas imports, particularly in Asia.

7.    Industry Response: The gas industry would likely strongly oppose such measures, arguing they discourage investment in new gas projects.

8.    Contract Sanctity: Interfering with existing contracts could raise legal issues and might require the government to compensate affected parties.

9.    Long-term Consequences: While potentially providing short-term relief, such intervention could discourage future investments in the gas sector, potentially leading to supply issues down the line.

10. Alternative Measures: Governments might consider less drastic measures first, such as negotiating voluntary agreements with gas producers to increase domestic supply.

I doubt this would happen; while this option appears to exist, it would be a significant and controversial step.

Governments typically regard such interventions as a last resort due to the potential economic and diplomatic consequences.

The decision would most likely involve weighing immediate benefits against long-term consequences for the Australian energy market and economy as a whole.

What 5 Things Could Be Done To Get NSW Gas & At A Cheaper Price?

1.    Expedite Approval of New Gas Projects: NSW could fast-track the approval process for new gas projects, like Santos Narrabri.

a.    By streamlining regulatory processes (Green & Red Tape) while maintaining necessary environmental and safety standards, the state could potentially increase domestic gas supply more quickly.

b.    This increased supply could help put downward pressure on prices.

2.    Implement a State-Based Gas Reservation Policy: Following Western Australia’s example, NSW could introduce a policy requiring a certain percentage of gas produced within the state to be reserved for domestic use.

a.    This could help ensure a steady supply for the local market, potentially reducing prices.

b.    However, this would need to be carefully balanced against potential impacts on investment in new gas projects.

3.    Negotiate with the Federal Government for Targeted Use of the ADGSM: NSW could work with the federal government to use or threaten to use the Australian Domestic Gas Security Mechanism (ADGSM) specifically for NSW’s benefit.

a.    This could involve redirecting some gas earmarked for export to the domestic market, increasing local supply and potentially reducing prices.

4.    Incentivize Energy Efficiency and Fuel Switching: By offering strong incentives for businesses and households to improve energy efficiency or switch to alternative energy sources where possible, NSW could potentially reduce overall gas demand.

a.    Lower demand could lead to lower prices.

b.    This could include subsidies for energy-efficient appliances or support for electrification in industries that currently rely heavily on gas. 

c.    This would be an ok option if we already had Nuclear Power Online but given the current electricity generation crisis by going too far too quick with Solar and Wind, I don’t think it’s a valid option.

5.    Invest in Gas Storage Infrastructure: NSW could invest in or incentivize the private sector to invest in more gas storage infrastructure.

a.    Enhanced storage capabilities could help manage seasonal demand fluctuations more effectively, potentially reducing price spikes during high-demand periods and contributing to overall price stability.

I think things would settle down a bit in the manufacturing space if we can initially get the cost of gas down to $15 per gigajoule over the next 12 months. 

However, I do think this would be a significant challenge and would likely require a combination of these measures, as well as favorable market conditions.

Some of these actions, particularly those involving policy changes or infrastructure development, might take longer than 12 months to fully implement and see results.

Additionally, any actions taken would need to be carefully considered in terms of their long-term impacts on the gas industry, investment in NSW, and Australia’s broader energy policy and international commitments.

The goal would be to balance immediate price relief with long-term sustainability of the energy market.

The latest in CMMS Technology
0 0 votes
Article Rating
Subscribe
Notify of
guest
0 Comments
Inline Feedbacks
View all comments
0
Would love your thoughts, please comment.x
()
x
Scroll to Top