A variety of projects in Australia and overseas will ‘have to wait’ for customers. Photo: Michele Mossop

Farmers and environmentalists will be happy. Hong Kong power juggernaut CLP has just written off its stake in the Narrabri coal seam gas project to zero. Gas prices are falling, in line with the plunging oil price, putting high-cost projects put on ice.

AGL’s incoming chief  Andrew Vesey and his board must surely be contemplating the same for their CSG project at Gloucester. Same deal here: high cost, high community opposition; and for AGL, which has 6 million retail customers, prospective brand damage.

Santos did take an $808 million cut to Narrabri but still values its 80 per cent stake at $543 million. The rationale for the revaluation was that reserves were not as big as had been thought. Exploration methods, however, are sophisticated these days and it is likely that community angst and above all, falling prices for gas around the world were factors. The economic justification for high-cost CSG no longer exists.

Yet we still have a problem. Over in Marcus Clarke Street in the nation’s capital, the Jedi Masters of Spin, the Australian Petroleum Production & Exploration Association (APPEA), are yet to resile from their scaremongering strategy that there is a shortage of gas in Victoria and NSW and no choice but to ramp up onshore drilling.

As we have written before, Australia is swimming in the stuff. Still, you won’t see much chat about falling prices or easing demand from APPEA or its members.

Down at APPEA headquarters in Marcus Clarke Street in Canberra, they are still in denial over the environmental risks of CSG and still sticking to their guns on the impending “supply cliff”.

“If gas reserves are not developed, there is a very real risk that NSW will face significant energy supply and cost challenges within the next few years.”

All the while they provide no public information on gas reserves while the producers have been falling over themselves to pipe the stuff to Gladstone to be turned into LNG and shipped off to Asia. The most reprehensible PR line has been that Victoria and NSW might have to “import” gas. Traditionally, the word “import” has been reserved for trade between nations. Traditionally, the Cooper Basin and the Bass Strait have supplied the eastern states any way.

Yet we get this: “It’s time NSW powers more of NSW”. And this: “To delay much-needed gas development decisions to mid-2016 is neglectful of the urgent need to secure Victoria’s gas supply as outlined by the Gas Market Taskforce.”

It is amazing anybody is still listening. Were we to accept this “import” logic, we might well embrace calls from the Australian Aluminium Council that new bauxite mines and smelters should urgently be developed in NSW and Victoria so these states did not have to import the stuff from Boddington in WA. There are no such calls.

Alas, APPEA – unlike the millions of people who consume gas and the thousands of businesses that rely on gas – has firepower. Its latest set of accounts shows a budget of $22 million, of which $6.6 million went on salaries. This is one well-oiled spruiking machine. Some $1.2 million was expended last year on CSG campaigns and they were still sitting on $5.4 million in “unexpended project funds” at year end. With that kind of lobbying muscle it is little wonder they have influence in government.

Yet you won’t see a press release on demand and price. Until last year, when oil crashed (the price of gas is linked to oil), the spin from the gas lobby was that escalating prices would lead to a shortage. They were wont to cite the price in the Japan-Korea market (JKM), the world’s most expensive.

This fear was real – a year ago when JKM was buying gas for $16 a gigajoule. It costs about $5-$6/GJ to liquefy gas at LNG facilities, like those built at Gladstone, and ship it to Asia. So commentators were saying our domestic market was going to need to pay $10/GJ for contracted gas to match the export price (less costs of liquefaction and transport).  This was a massive price rise on the $3-$4/GJ that historically was paid in eastern Australia.

But the world has moved on. There has been the large fall in oil prices but even more spectacular has been the crash in LNG prices. The JKM contract price has collapsed from $16/GJ to less than $8/GJ.

The factors that have driven this collapse are an unprecedented increase in supply from Australia, PNG and Russia.  With many projects yet to start exporting (those two massive gas deals between Russia and China are yet to see the pipelines built and Gladstone has only just started to ship from one of its three projects), this massive supply side increase has combined with a mild slowing in demand.

So the new price for gas in the most expensive market in the world for gas, the JKM, is less than $8/GJ. Now converting for currency and taking off the liquefaction and transport costs gives a domestic contract price of … wait for it …$4/GJ.