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

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. Highlights • Improved network interconnectivity can provide material and sustained price reductions. • Potential reductions of over $2/GJ in average gas prices on the eastern seaboard. • Wallumbilla-Newcastle Gas Pipeline seen to have most value from system and investor perspective. • Flow-on electricity price reductions up to 19% depending on generator bidding behaviour. [ABSTRACT FROM AUTHOR]