Gas Supply and Demand in Australia

This assignment analyzes the issue of liquefied natural gas (LNG) shortages in Australia's domestic market. It explores the rising demand from businesses and households against insufficient supply, leading to price increases. The government's response, including restricting LNG exports, is discussed as a short-term solution. The assignment further proposes long-term solutions such as relaxing exploration laws, promoting competition, and creating a favorable environment for gas producers.

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DEMAND AND SUPPLY OF GAS IN AUSTRALIAN LOCAL MARKET
Student’s Name
Course
Date

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Introduction
The article titled “Australia curbs LNG exports amid domestic gas shortage” by Jamie
Smyth on 27th April 2017 talks about the shortage of gas in Australia’s domestic market and the
measures being taken to curb the situation. There are discrepancies between the supply and
demand of gas in the local market. The demand for liquefied natural gas in the domestic market
has grown, and yet the supply is insufficient to check on the escalating demand. The aftermath of
this situation has been shortages and price increases for domestic consumers.
The government is concerned about the deficit as the local industry will be disrupted
significantly. According to the Australia’s Prime Minister, Malcolm Turnbull, it is unacceptable
for Australia to be one of the largest global exporters of liquefied natural gas and yet the
Australian businesses and households are experiencing a shortage. As a result, the government
has introduced Gas Security Mechanism to protect the interests of local homes and businesses.
Under this arrangement, the leadership will be in a position to restrict the exportation of gas in
case of scarcity in the domestic market.1 This regulation has raised concerns among the
producers and analysts who argue that the scheme will increase uncertainty in the industry and
could further interrupt the domestic supply.
Economic Analysis
Demand for Gas
1 Smyth, Jamie. Australia Curbs Lng Exports Amid Domestic Gas Shortage. April 27th,
2017. Https://Www.Ft.Com/Content/6411b380-2b01-11e7-9ec8-168383da43b7
(Accessed August 24th, 2017).

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Liquefied natural gas is a valuable resource to households and business community in
Australia. Therefore, as the incomes of Australians rise, the demand for gas increases
considerably. The need to adopt cleaner energy has also increased the demand for this resource
among the firms. Additionally, as more enterprises are being set up, the need for the liquefied
natural gas has increased.2 The increase in the use of the gas in the local market has made the
prices to increase.
Graph 1: Increase in Demand for Gas
Price
Quantity
The rise in the use of liquefied natural gas by Australian households and the firms is
shown by the shift in demand curve from D0 to D1. This situation has increased the quantity of
gas demanded and also a hike in the price. The amount of gas supplied by the producer is Qe
while the quantity demanded is Q2. The gap between Q2 and Q1 depicts the shortage. The price
has increased from P1 to P2.
2 Grafton, R. Quentin, And N. Ross Lambie. "Australia's Liquefied Natural Gas Sector:
Past Developments, Current Challenges And Ways Forward." Australian Economic
Review, 2014: 509-522.
S
P1
Pe
D1Shortage of
gas D0
Q2Qe Q1

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The Supply of Gas
The increase in the price of gas in Australia also results from disruptions in the provision
of this resource. Studies reveal that several factors are impeding the provision of gas to domestic
consumers. Foremost, the firms involved in exploration and production of gas have concentrated
in generating for exports thus creating a shortage in the local market.3 Some policies by states are
also hindering the capacity of companies to deliver sufficient gas to the Australians. For
example, states like Victoria and Northern Territory have regulations restricting the extraction of
new gas reserves. Furthermore, lack of adequate infrastructures is limiting the efforts by
producers to provide adequate gas to the local users.4 These factors among others have
contributed to the tightening local gas provisions resulting in a sharp rise in prices.
3 Mokhatab, Saeid, John Y Mak, Jaleel V Valappil, And David A Wood. Handbook Of
Liquefied Natural Gas. Burlington : Elsevier Science, 2013.
4 Clark, Robert Graham, And Mark Thomson. Transport Fuels From Australia's Gas
Resources : Advancing The Nation's Energy Security. Sydney: Unsw Press, 2014.

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Graph 2: Decline in domestic Gas Supplies
Price
Quantity
The drop in supply of gas in the domestic market is shown by the change in supply curve
from S1 to S2. This shift results in a decline in the amount of gas provided to the market from Qe
to Q1. On the other hand, the prices increase from Pe to P1.
Recommendations
The shortage of gas is detrimental to the Australian local industry. As the prices
increases, the cost of doing business in this country is rising and thus denying the domestic
companies a competitive advantage. Some corporations may be forced to close their businesses
while others shift their operations to foreign markets and thus job loss. Restricting the
exportation of gas will obstruct the established investments and also negate Australia’s net
export income. Therefore, the government should concentrate on those plans that will increase
the provision of gas to local industry to ensure long-term certainty. Some of these schemes
include the following.
P1
Pe
S1
D
QeQ1
B
A
S2

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Relax Laws Hampering the Exploration of New Gas Reserves
Foremost, the territories with restrictions on the exploration of new gas reserves should
relax such limiting regulations to accelerate the supply of gas to the consumers. The removal of
bans will enable the exploration of additional gas to facilitate Australia’s goal of being a net
exporter and at the same time meet the demand of local consumers.
Boost Competition
Moreover, the Australian Competition Commission has a critical role to play in
enhancing the functioning of Australia’s gas industry. This body should put measures in place to
boost competition in the gas sector by availing timely, reliable and sufficient information to both
producers and consumers. Health competition is instrumental in lowering the costs and attracting
new firms to the industry to increase the supply of this resource.5
Provide an Enabling Environment
Ultimately, the government should provide a conducive environment to companies
involved in exploration and extraction of natural gas. For instance, the leadership of this country
should develop key infrastructures such as roads and pipelines. Better roads and pipelines will
enable easier and fast movement of gas to the market and also lower the costs involved in
transportation. Increasing access to credit and finances is also another way the government can
support the activities of producers to supply sufficient gas to local and foreign market.
Conclusion
5 Haslam Mckenzie, Fiona. "Delivering Enduring Benefits From A Gas Development:
Governance And Planning Challenges In Remote Western Australia." Australian
Geographer, 2013: 341-358.

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The domestic market in Australia is encountering shortages in liquefied natural gas.
While the demand for this resource among the local businesses and households is on the rise, the
supply is insufficient to deal with the escalating demand. The aftermath of this scenario has been
an increase in the price, and the government has responded by restricting the exportation to curb
on shortages. This move by the government will only provide a short term solution, and therefore
there is a need for a permanent way out. Some of the ways Australia can use to ensure long-term
certainty in this sector include relaxing laws hampering gas exploration, boosting competition
and providing an enabling environment to the business community.

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Bibliography
Clark, Robert Graham, And Mark Thomson. Transport Fuels From Australia's Gas Resources :
Advancing The Nation's Energy Security. Sydney: Unsw Press, 2014.
Grafton, R. Quentin, And N. Ross Lambie. "Australia's Liquefied Natural Gas Sector: Past
Developments, Current Challenges And Ways Forward." Australian Economic Review,
2014: 509-522.
Haslam Mckenzie, Fiona. "Delivering Enduring Benefits From A Gas Development: Governance
And Planning Challenges In Remote Western Australia." Australian Geographer, 2013:
341-358.
Mokhatab, Saeid, John Y Mak, Jaleel V Valappil, And David A Wood. Handbook Of Liquefied
Natural Gas. Burlington : Elsevier Science, 2013.
Smyth, Jamie. Australia Curbs Lng Exports Amid Domestic Gas Shortage. April 27th, 2017.
Https://Www.Ft.Com/Content/6411b380-2b01-11e7-9ec8-168383da43b7 (Accessed
August 24th, 2017).