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Industry minister rings alarm bell on looming NSW gas crisis

The newly appointed Federal Minister for Industry, Mr Ian Macfarlane, has wasted no time in speaking out on the critical situation facing New South Wales’ future lack of gas supply.

According to a report published by the ABC, the Minister suggested that NSW will run short of gas by 2016 and that “literally hundreds, if not thousands, of jobs will be put in jeopardy in Newcastle, Sydney and Wollongong, as a result of low gas supplies and high prices that come from that.”

Minister Macfarlane’s concerns are echoed by lobby group Manufacturing Australia (MA). MA is deeply concerned by the impending start-up of gas export plants in Queensland which will divert gas supplies from domestic use to export. In a report by MA published in May 2013, the group warned that “almost 200,000 Australian jobs could be lost and up to $28 billion in economic value wiped out if Australian governments fail to intervene to ensure competitively priced gas remains available for Australian manufacturers.”

The potential for a looming gas crisis is a worry for residential customers as the cost of heating and cooking balloons as well as a major concern for many manufacturing firms, including Incitec Pivot (ASX: IPL) who is a major gas user and also a member of MA.

For producers of LNG the opening up of export markets is set to be a boon with Origin Energy (ASX: ORG), Santos (ASX: STO) and Woodside Petroleum (ASX: WPL) all holding significant LNG assets. However the potential for government intervention and regulation and a crash in the global price of LNG as significant seaborne supply comes on stream are two clouds which will continue to hang over the LNG sector.

Foolish takeaway

While at the retail end there is obviously a worrying outlook for both lower supply and higher prices, service providers to the LNG industry such as APA Group (ASX: APA) which owns and maintains pipelines for transporting gas is likely to be a winner no matter what occurs. For investors interested in the LNG sector, given uncertainties within the sector it could be worth focusing exposure on volumes to the gas market rather than exposure to prices.

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Motley Fool contributor Tim McArthur owns shares in Origin Energy.

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