“[CSM] has provided strong gas-on-gas competition to the PNG Project and any further slippage by the PNG Gas Project may see further inroads made by coal seam gas into becoming, within the next decade, the major source of natural gas to the east Australian market,” the report stated.

The PNG Gas Project is almost certain to suffer “further slippage” with Australian Gas Light announcing last week it was “scaling back” front-end engineering and design for the pipeline’s Australian leg, saying “the lack of confirmed customer load” for the scheme prevented it from further progressing the project.

One of the reasons the PNG gas partners have struggled to sign up customers is strong competition from the cost-effective CSM industry.

The use of gas-fired power has grown strongly in Queensland, where the State Government introduced a quota under which 13% of electricity generated in Queensland was to be gas-derived.

This policy was designed in part to underwrite the proposed PNG gas development, but ironically it has also driven the rapid development of the state’s CSM sector, which is now sealing contracts that the PNG partners had hoped to lock in.

The Queensland Government has now distanced itself from the PNG project, with Deputy Premier Anna Bligh saying it supported the private sector project, but would not invest in it.

The RLMS report is available in the Australian Petroleum Production and Exploration Association’s 2006 Journal.