The new Liberal government wants to open up New South Wales for more coal seam gas (CSG) development.
Delays and added layers of red tape as well as environmental pressure are will potentially cause a rise in gas prices when Queensland CSG delivery to export markets moves to full production. If NSW doesn't have a sufficient amount of its own or alternative sources from other states, then QLD gas prices will control pricing.
Who benefits from having NSW open up its CSG development? Surely the biggest is Santos (ASX: STO), which has invested over $1 billion, but now with more regulatory controls and extra approvals processes, it is now estimating that it may be 2017 or even 2018 before it can even start.
This uncertainty is also putting off potential investors into the project because they won't help with funding if they can't be assured of when it will actually start. The $2 billion Pillinga project is estimated to potentially supply one quarter of NSW's gas demand once it is in full production.
Origin Energy (ASX: ORG) stands to benefit more because it already has extensive QLD development going on presently, and will be able to get the higher price from overseas markets regardless of the NSW situation. It doesn't have any current developments in NSW, so if the regulatory burden isn't lifted, it will be unaffected. If NSW is opened up, then it also has the opportunity of investing in projects to add to its supply and earnings.
Mining services companies like Drillsearch (ASX: DLS) can get in on the action if the federal and state governments open up the approvals logjam. It is already planning to work with Santos in Coopers Basin in SA for oil and gas drilling, so if Santos needs to drill hundreds of wells in the first stages of its NSW project, Drillsearch already has business connections.
Foolish takeaway
When making an investment decision, you want to consider which companies benefit, and which gain if the action doesn't go through. In the case of Origin, it wins either way.
While the NSW CSG industry is sorting itself out, keep an eye on WA because apart from the offshore oil and gas industry, the state's CSG potential hasn't been tapped, and it may be easier to do business out there where the state government is more open to development and vast areas of uninhabited land makes business easier to do.
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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned.
