QUEENSLAND'S $50 billion of planned gas export projects could slow the nation's move away from coal-fired power by making domestic gas power plants more costly to run, analysts say.
In what could become a major policy headache for the commonwealth government, an expected surge in east coast gas prices may almost triple the carbon price needed for gas power to become competitive with coal-fired power, according to new studies.
Because all the states, apart from Western Australia, are linked with pipelines, domestic buyers in Victoria and Tasmania will be competing with the more lucrative export markets for Australian gas once three coal-seam gas plants being built at Gladstone start exporting from 2014.
Analysts say this will probably rapidly double east coast gas prices, which at between $3 and $4 a gigajoule, are cheap by world standards.
In separate presentations, analysts speaking at an Australian Institute of Energy gas forum in Melbourne last week warned the take-up of domestic gas-fired power would probably be slowed down because of price rises forced by Queensland LNG exports.
Daniel Magasanik, an associate at Intelligent Energy Systems, said many forecasts of gas-fired power demand over the next 20 years were overstated.
"Higher gas prices, everything else being equal, will dampen the move to a lower emission power generation sector, because gas will be less competitive," Dr Magasanik said.
"So these Queensland LNG projects will have the effect of not helping Australia to decrease carbon intensity, even though they may have that effect in the country that buys the LNG."
IES says the uptake of gas-fired power till 2030 will be about half that forecast by the Australian Energy Market Operator in a 2010 scenario that looked at a high level of LNG exports.
ACIL Tasman executive director Paul Balfe said high gas prices and a moderate carbon price would mean the economics of coal-fired plants remained preferable to combined-cycle gas turbine plants. This in itself would not mean more coal plants because of the uncertainty of building a new plant, given the risk of increased carbon pricing.
"That raises serious policy decisions," Mr Balfe said.
"It leaves us in something of a vacuum in terms of investment signals for the gas-fired proponent, who is facing rising gas prices so the economics don't really stack up, versus a coal-fired proponent, where the political and financial risk environment makes it difficult to move forward."
The government could use other means, such as compensation, to support the move to gas.
IES analysis shows that at the Gillard government's starting carbon price of $23 a tonne and current east coast gas prices of about $3 a gigajoule, gas starts to become competitive with coal.
But under a $6 gas price, a carbon price of between $60-$65 is needed for gas power to be competitive.
CSG-to-LNG proponents Santos and Origin Energy, which also provide domestic gas and, in Origin's case, domestic coal and gas-fired power, declined to comment on the studies.
The Australian
AGL Energy, which is a gas buyer, a gas producer and a coal, gas and renewable power producer, also declined to comment.
