Tasmania gas market at risk of collapse without regulation

Only 5% of households and 2% of businesses in Tasmania are connected to the gas supply, Goanna Energy Consulting said in a report for the Tasmanian Small Business Council.

Not every Tasmanian home or business has access to the gas supply, but of the approximately 43,000 potential customers only 12,508 have connected, the report said.

The 13-year old Tasmanian gas market is "small and vulnerable" and "potentially at risk of spiralling into failure" Goanna Energy said.

The scale of the market in Tasmania means high unit costs, and the fixed costs associated with building and maintaining gas pipeline assets "need to be recovered over time from users and the number of gas molecules transported through the infrastructure. Put simply, the less gas that is transported, the higher the unit cost becomes", the report said.

However, unregulated pricing has stopped the market from growing as expected or reaching "critical mass", the report said.

Goanna Energy proposed that pipeline assets could be classified as a regulated asset, with a regulated financial return to the owners.

While the Tasmanian government is not responsible for saving a private energy asset owner, it also should not "allow the market to stagnate and ultimately risk it failing. Better that the government act as a facilitator of market growth, and remove structural imperfections and any price distortions", the report said.

Infrastructure expert Simela Karasavidis of Pinsent Masons, the law firm behind Out-Law.com said: "The energy mix in Tasmania is changing with natural gas reticulation, the Basslink undersea electric cable and wind energy contributions to energy sources becoming increasingly important. It would be a big blow to Tasmania and the Australian gas industry if the gas market fails in Tasmania, irrespective of the economics. The gas industry and its advisers will be keeping a close eye on what action, if any, the government takes as a result of this report."