Measurement Solutions Blog

Could coal cause problems for the natural gas market?

The next few years could prove to be a trying time for Australia's natural gas industry, especially as cheaper fuels take over the market. The International Energy Agency (IEA) has released its 2015 Medium Term Gas Market Report, which highlights some of the challenges that lay ahead.

Although it anticipates that lower prices will help pick up natural gas demand over the next half-decade, there are nevertheless some difficulties on the horizon.

"The experience of the past two years has opened the gas industry's eyes to a harsh reality: in a world of very cheap coal and falling costs for renewables, it was difficult for gas to compete," noted executive director of the IEA Maria van der Hoeven.

All eyes are on Asia at the moment, as demand for natural gas has weakened considerably across the continent over recent months. Although falling prices are expected to boost demand for the short term at least, the longer term outlook for the industry is somewhat more uncertain.

Australia has strong trade links with Asia, so it is probably fair to say that its natural gas industry will also be impacted by this emerging trend. This is contrary to the Australian Energy Market Operator's (AEMO) 2015 Gas Statement of Opportunities, which forecast that no supply gaps will be present over the next four years.

However, AEMO did suggest that the market will not be without its problems. Eastern and south-eastern gas markets are already witnessing "rapid transformational change", noted CEO and managing director of AEMO Matt Zema.

"A fall in the forecast demand, increased capacity of the Victoria–New South Wales interconnector, and upgrades to the Moomba-Sydney and Moomba-Adelaide pipelines, all reduce the potential for supply gaps in the short term," he commented.

The outlook might not be quite as bleak as some experts have suggested. Presenting its findings to the 26th World Gas Conference in Paris, EnergyQuest forecasts that gas production is set to grow strongly across Australia in the near future.

Demand for mining equipment repairs and other services may therefore remain strong, as the group pointed out that Australia has accomplished a "remarkable achievement" in light of the headwinds facing the natural gas sector.

There is also the fact that Australia faces tight environmental restrictions when trying to get major projects off the ground. In many cases, approval is needed from both state and federal governments, which makes these recent achievements even more impressive.