storage tanks for oil and natural gas in the cooper basin region south australia

"Cooper Basin gas supplies are dwindling" ... NSW government submission to the federal government. Photo: Brendan Esposito

THE state government has warned of gas shortages emerging in NSW within the next two years as it puts its weight behind coal seam gas to head off any supply disruptions.

Large numbers of Nationals and Liberal Party MPs are opposed to allowing the widespread use of coal seam gas due to environmental concerns, especially over the likely impact on aquifers in farming areas.

In its submission to the federal government's draft white paper on energy, the state government has warned gas could begin to run short in NSW from as soon as 2014, as long-term supply contracts from the Cooper Basin in central Australia begin to expire.

At the same time, oil and gas reserves in the Bass Strait,are running out, which will place further pressure on NSW to find additional sources of gas.

The warnings come as the power industry is moving to use gas to replace coal as its preferred source of energy to generate electricity as a result of the carbon tax which is to begin from midyear and may make it uneconomic to use coal.

In the submission, the NSW government has endorsed this shift, saying that using gas to generate electricity is likely to emerge as the ''transition option to a low carbon economy''.

As a result, gas demand might triple over the next two decades, it said, which would place additional stress on existing gas supplies and drive the need for new sources to be found and developed, the state government said.

Referring to the ''unprecedented changes'' under way in eastern Australia's gas sector, the state government warned that ''Bass Strait and Cooper Basin gas supplies are dwindling at a time when the gas export industry is growing at an extraordinary rate''.

''The consulting firm Wood Mackenzie warns that further delay in gas developments in NSW will contribute to a supply shortfall as early as 2014, and could have a direct impact on the state's consumers, through gas supply challenges and higher energy costs.''

In recent research, the consultant, which is a well respected adviser in the global energy and resources sector, argued that demand growth on the eastern coast of Australia could be largely satisfied by new coal seam gas developments.

Any significant delays to development schedules from land owners or the environmental lobby could exacerbate an already tight gas market situation, it warned, with widespread disruption likely from about 2016 without new supplies.

Long-term contracts to supply gas to NSW, principally from the Cooper Basin in central Australia, begin expiring from 2014, with large additional volumes of gas needed from around 2016 and 2017, at a time when the boom in export gas projects in Queensland will leave NSW gas consumers increasingly at risk, unless large additional sources of gas are found.

At the same time, the era of low gas prices is coming to an end, the state government warned, with domestic gas prices to rise to international price levels, which are as much as three-times present levels.

A state parliamentary inquiry into the use of coal seam gas is due to report its findings early next month. It received more than 900 submissions, which were overwhelmingly opposed to tapping this resource.

The state government also called for the federal government to abandon its renewable energy target with the introduction of the carbon tax.