The Deloitte analysts' warnings are prescient given the Australian Competition and Consumer Commission's inquiry into the east coast gas markets released last week recommended the CSG drilling moratoriums in New South Wales, Victoria and Tasmania be scrapped.
Houston-based Andrew Slaughter, executive director for the Deloitte Centre for Energy Solutions, told a ‘thought leadership' lunch at the firm's Perth base during the recent LNG18 conference that with east coast gas prices rising following Gladstone's three LNG mega-projects going online, linking the domestic market to global trading, the logical response would be investment in new supply "where ever it comes from".
"If you get a pricing signal that can translate back into the upstream, into drilling activity, everything I see in the resource base could support the expansion in these locations," Slaughter said.
"So it comes down to political choice between affordability and reliability of gas supply versus other objectives … if there are land use or community objections to development, then that's a trade-off you have to recognise explicitly.
"In many jurisdictions investment in the upstream has benefited a wide swathe of stakeholders both locally and regionally and has contributes to affordable supply."
Different world
Brisbane-based Geoffrey Cann, Deloitte's national director for oil and gas, said the world has changed dramatically from several years ago when Australia's domestic gas market was an isolated geographic market and there were even thoughts of an LNG export facility at Newcastle in New South Wales.
He said gas prices in the east coast were now denominated - or at least exposed - to US currency pricing as the gas is now sold in US$, and linked to oil prices.
Those two macro-changes would cause some consternation, Cann said, because east coast gas buyers are unused to having to deal with those two variables in terms of product pricing.
"There are already signs in the market that east coast gas prices will rise above the netback price that would be achieved by selling into the LNG trade," Cann said.
"We've seen the same phenomenon in the US which is a structural decline in field activity; that same capital pressure which is hitting the east coast is also hitting the east coast of Australia.
"You pull that capital out and the projects will then reach into the domestic market for gas supply as it's available, and as a consequence east coast gas prices will start to run up so there will be a temporal delinking of oil and gas prices - but that can't last.
"It's a very frightening scenario, but imagine the political pushback when Australia's east coast gas prices in the most populous part of the country start rise above what gas producers are able to achieve by selling to Japan."
Cann said building an LNG receiving terminal in Sydney was "certainly not inconceivable", as it's not without precedent for other countries around the world to both import and export LNG.
"Brazil both ships and imports LNG as it needs to balance its market out and has challenges trying to get its gas domestically. It could easily be said that the same phenomenon is starting to appear on the east coast of Australia," Cann said.
Further, Cann warned that Queensland, despite being the only east coast state "open for business", is too slow in its approvals processes to save its southern neighbours' energy crisis in time.
Cann said it would take 14 years from applying for a license to producing first gas in Queensland, and $100 million would be spent in the process.
"If Andrew and I decided to prosecute a tenement in Queensland that we believed had gas resources, then from the time it takes to formalise our business plan, clear all the environmental hurdles and permits necessary, complete the engineering works, align all the stakeholders, get rigs, crews etc on site drilling and delivering gas, it's 14 years from deciding to go into business to getting gas to surface," Cann said.
"This is not a recipe for success in the gas industry.
"So Queensland, which is the ‘open for business' state, is not even in the position to help free up the resource necessary to solve some of these gas challenges that we face."
In comparison, Slaughter said an offshore rig could be turned around in the Gulf of Mexico in seven years.
"In Texas or Louisiana you can get drilling permits in a month or two, drilling time is about 10-20 days, the supply chain is there … this can happen very quickly if all the pieces are in place," he said.
