Introduction about the issue
Demand and supply are the most vital concepts in micro economic analysis. the concept of demand refers to the quality of the product desired and brought by a consumer at a particular time at a given price, whereas supply is the quantity of product that is brought in the market for sale at a at a particular time and at a specific time. A recent new was published by the financial review segment of AFR News which was composed by Mark Abernethy titled "Supply the biggest issue in the east coast gas market, says industry" on May 14, 2017. The main aim of the study was to recognize the transition of the eastern gas market and from domestic market to export market. The domestic gas market has been increasing after the introduction of liquefied natural gas on the east coast and nearby increasing the market demand and supply. Despite the efforts made by the LNG industry in increasing the gas supplied and pipeline infrastructure, the timing of these operations is resulting in uncertainty about the expense of domestic gas and its accessibility.
People involved in the issue
In this particular case study of Eastern Australia Gas Market, the issue is related to the domestic supply of gas. Government of Australia plays a major role in deciding about how they manage the resource of their country such that there can be development in the LNG market and domestic market as well. The main parties involved in the issue are the organizations of the LNG industry, upstream producers, tenement holders, pipeline managers, domestic gas suppliers, consumers and the Government of Australia (Australian Government, 2014). LNG plants are focussing on how they can expand the gas market of Australia by introducing better infrastructure for the pipeline and bring new gas supplies. However, this is having an adverse effect on the cosy and availability of the domestic gas. Moreover, the industrial users are having issues in securing resources at previous prices because of which the customers are facing issues in buying high priced gas. Other than this the Commonwealth agencies, territories and state governments are also involved in the decision making process of this issue.
Figure 1: Change in the demand of global gas
(Source: AFR, 2017)
Evaluating the article with the help of economic theories and concepts
The gas demand of Australia forms a significant part of the eastern market demand of Australia. There are large number of consumers for this resource. The prices of the oil and gas have changed significantly from the year 2012. The price of the gas and oil products tend to fluctuate when the price elasticity becomes lower. As LNG is trying to expand to the international market and improve the gas industry of Australia, this global economic prospect is having a negative impact on the domestic market. This expansion would require more output of gas and oil which would directly affect the price (Leatheret al., 2013). The price would tend to go higher and the industrial users would have to raise the price accordingly.As LNG market is going to export the gas to other countries to flourish the gas industry of Australia, it can be said that the demand of the domestic supply of gas and oil would significantly decrease. This can be described with the demand and supply theory which states that when the availability of a particular product is low, the price of the product is affect and it tends to go high.
Figure 2: Output of gas and oil in Australia
(Source: AFR, 2017)
Apart from the price of the gas, this case would also have effect on the labour force and the overall industry of gas. The availability of the labours would be high, but the labour cost would be significantly low as the production and availability of the gas would be very low. Moreover, irrespective of the expansion plan, the producers and suppliers have to abide by the Competition and Consumer Act 2010 (Business.gov, 2017). The industry users and Government of Australia has to focus on how they can set regulations controlling the prices in order to comply with the global demand, while sustaining the gas industry of the domestic market.
Recommendations for the policy holders and key players
The government should take advice of the oil companies on regulations for safeguarding their independence. Apart from this, they can also prospects for secondment of the workforce to construct capacity. The international regluationsshould be written after taking into consideration the international standards. In case the associated gas found in oil reservoirs are not used, then it results in flaring. Flaring proves to be comparatively more expensive, causes more environmental damage and also reduces the chances of optimum utilisation of gas (Kelsey, 2015). A condition should be incorporated in the manufacturing sharing concession for putting a ban on flaring as well as penalties for illegal flaring. The Queensland LNG producers will get an incentive for supplying the gas in the domestic market from the price of domestic gases. The increase in the gas price can give the operators a chance to quicken growth of gas reserves and resources, which have not been produced yet. They can also invest in the discovery process so that they can bring in high level of unpredictable resources of gas in the market. Energy Security Obligations should be adopted where transmission network service suppliers would have to maintain an appropriate level of inertia for every region.
The rapid growth in the export of capacity of LNG has developed various uncertainties regarding domestic supply, performance of CSG wells and the timeline for growth of CSG production. Having detailed knowledge about the CSG development process can help in decreasing the level of uncertainty and enhancing the capability of the market participants for dealing with risks. Government will play a significant role in increasing the supply of gas. The gas suppliers should adapt the contracting and supply strategies in order to safeguard the supply. Australia has 144 trillion cubic feet of natural gas, which is 100 times more than the current annual domestic consumption. Natural gas consumption is comparatively less polluting than coal and oil consumption and it also contains less particles and contaminants than coal and oil.