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The feasibility of cost-effective gas through network interconnectivity: Possibility or pipe dream?

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  • Billimoria, Farhad
  • Adisa, Olumide
  • Gordon, Robert L.

Abstract

Australia's east coast gas market has faced transformational shifts in demand with the commencement of three Liquefied Natural Gas facilities in Queensland. Faced with risks of high domestic prices and potential gas shortages, political intervention has been considered as a possible solution. This paper investigates the impact of network interconnectivity on domestic gas prices by employing a long-term planning model underpinned by mathematical optimisation. At optimal system cost, improved network interconnectivity can provide material and sustained price reductions for the gas market with potential flow-on reductions to the electricity market. Increased connectivity is shown to deliver reductions of over $2/GJ in average gas prices across the eastern seaboard, with a subsequent reduction in electricity prices across all mainland National Electricity Market (NEM) regions. The results also highlight the need to unlock new supply as new transmission projects, though having the potential to reduce gas prices through market connectivity, rely on adequate supply to meet long term demand, and sustain market balance.

Suggested Citation

  • Billimoria, Farhad & Adisa, Olumide & Gordon, Robert L., 2018. "The feasibility of cost-effective gas through network interconnectivity: Possibility or pipe dream?," Energy, Elsevier, vol. 165(PB), pages 1370-1379.
    • Handle: RePEc:eee:energy:v:165:y:2018:i:pb:p:1370-1379
    DOI: 10.1016/j.energy.2018.10.010
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    References listed on IDEAS

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    1. Paul Simshauser & Tim Nelson, 2015. "The Australian east coast gas supply cliff," Economic Analysis and Policy, Elsevier, vol. 45(c), pages 69-88.
    2. Paul Simshauser & Tim Nelson, 2015. "Australia's coal seam gas boom and the LNG entry result," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 59(4), pages 602-623, October.
    3. Jeppesen, M. & Brear, M.J. & Chattopadhyay, D. & Manzie, C. & Dargaville, R. & Alpcan, T., 2016. "Least cost, utility scale abatement from Australia's NEM (National Electricity Market). Part 1: Problem formulation and modelling," Energy, Elsevier, vol. 101(C), pages 606-620.
    4. Stern, Jonathan, 2014. "International gas pricing in Europe and Asia: A crisis of fundamentals," Energy Policy, Elsevier, vol. 64(C), pages 43-48.
    5. Brear, M.J. & Jeppesen, M. & Chattopadhyay, D. & Manzie, C. & Alpcan, T. & Dargaville, R., 2016. "Least cost, utility scale abatement from Australia's NEM (National Electricity Market). Part 2: Scenarios and policy implications," Energy, Elsevier, vol. 101(C), pages 621-628.
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    Cited by:

    1. Paul Simshauser & Farhad Billimoria & Craig Rogers, 2021. "Optimising VRE plant capacity in Renewable Energy Zones," Working Papers EPRG2121, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    2. Simshauser, P. & Gilmore, J., 2018. "On entry cost dynamics in Australia’s National Electricity Market," Cambridge Working Papers in Economics 1875, Faculty of Economics, University of Cambridge.
    3. Simshauser, Paul, 2022. "Rooftop solar PV and the peak load problem in the NEM's Queensland region," Energy Economics, Elsevier, vol. 109(C).
    4. Yuan, Meng & Zhang, Haoran & Wang, Bohong & Zhang, Yang & Zhou, Xingyuan & Liang, Yongtu, 2020. "Future scenario of China's downstream oil reform: Improving the energy-environmental efficiency of the pipeline networks through interconnectivity," Energy Policy, Elsevier, vol. 140(C).
    5. Simshauser, P., 2021. "Rooftop Solar PV and the Peak Load Problem in the NEM’s Queensland Region," Cambridge Working Papers in Economics 2180, Faculty of Economics, University of Cambridge.
    6. Paul Simshauser, 2021. "Lessons from Australia's National Electricity Market 1998-2018: strengths and weaknesses of the reform experience," Chapters, in: Jean-Michel Glachant & Paul L. Joskow & Michael G. Pollitt (ed.), Handbook on Electricity Markets, chapter 9, pages 242-286, Edward Elgar Publishing.

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