NSW faces gas price shock, not shortage
Source: AFR, 28 Jan 2015
Gas developers have been ominously warning of impending gas shortages in New South Wales, with official forecasts from planning authorities pointing to steady or rising demand. Yet our analysis suggests that these forecasts are likely well off the mark, that gas demand in NSW will fall, and that in reality NSW is facing an inevitable price shock, not a gas shortage.
With prices rising, consumers who reduce gas use and switch to alternatives might well weather the storm best, and that could mean a big drop in the demand for gas. Our analysis suggests that gas demand in NSW could fall to as much as half within ten years.
That could mean that gas investments being made now might never pay off – a similar situation to that in the electricity market, in which demand was forecast to rise continuously but fell instead, leaving infrastructure worth billions of dollars standing under-used, while people on tight budgets felt the impact of price shocks that seemed to come from nowhere.