Coal Seam Gas: An Opportunity Too Good to Let Slip By

New technology has allowed coal seam gas to become prominent as an energy source. In the US over the course of 10 years, CSG, together with shale gas, has grown from zero to 20 per cent of gas supplies and new export terminals will reverse the country's position as a gas importer.

Australian east coast reserves of CSG may comprise 275,000 petajoules, far more than the 160,000 petajoules estimated for conventional natural gas. They are set to supplement the already substantial North-West Shelf gas exports unless governments strangle the industry with regulations and that peculiarly Australian device of rolling ''moratoriums''.

In most of eastern Australia, gas prices have been relatively unaffected by global prices due to the lack of an export link. Australian east coast prices have averaged about $3 per gigajoule while overseas prices have ranged up to $10 and more, but the global recession has brought prices sharply down.

Once Australian CSG export facilities are built, local prices should converge with those overseas (though Australian consumers will benefit from avoiding ocean shipping and liquefaction costs).

Gas would receive a competitive lift if there is a carbon tax. It is already a cheaper source of electricity in countries that do not have Australia's low coal prices but for it to become cheaper than coal in Australia would require a carbon tax of about $50 per tonne.

However, even without a carbon tax, according to work by ACIL Tasman, if CSG is approved, not only will Australia gain valuable export markets but gas prices will fall by 6 per cent in Queensland and 15 to 20 per cent in the southern states.

The promise of CSG riches has brought anti-growth activists and the not-in-my-backyard NIMBYs campaigning against development. Much misinformation has accompanied these campaigns. Some activists have even suggested that the water used to pressurise the gas out of the coal seams could threaten to deplete the Great Artesian Basin. In fact, this would require the peak development of coal seam gas to be sustained for 600 million years.

Added to these concerns are those of people who want to preserve areas for farming and hobby farms and are mistakenly of the view that gas recovery is incompatible with this.

Confronted by NIMBY groups and a strong campaign from Alan Jones, the NSW government has been highly resistant to the industry. NSW politicians generally are placing increasing numbers of reviews, delays and special regulatory barriers in the path of any development. The opponents clearly see these as measures that will add costs to development and perhaps see it stopped entirely.

Already the inhospitable political approach in NSW has allowed Queensland to forge ahead. Gladstone is set to become one of the world's most prominent gas hubs, with BG, Santos, Origin and Shell all building export facilities. As a result, Queensland rather than NSW stands to gain hundreds of millions of dollars in royalties as well as the investment the industry attracts.

Any successes of the CSG industry's opponents will adversely affect Australian prosperity. Even if projects are allowed to proceed, the increased regulatory measures by states and the Commonwealth will assure that the costs of development are excessive and doubtless thwart some otherwise valuable projects.

CSG seems to be facing the same chorus of dissent that all too frequently thwart novel opportunities. Opposition towards new ventures by Australia's southern urban elites is contributing to areas outside of the north and the interior of the continent becoming the two-speed economy's slow gear.

The politically powerful in the southern capitals are holding back potential developments with rafts of regulations. Though primarily targeted at urban and near-urban areas, much of this regulatory morass also affects resource projects in the more remote areas, endangering the resource-based resilience that has so far helped us weather the international recessionary storms.

Alan Moran is the Director for Deregulation at the Institute of Public Affairs

Source: The Sydney Morning Herald