The Value of Australia's Natural Gas Resource - A Linear Programing Analysis

Natural gas prices in Australia have evolved from long-term contracts negotiated when energy prices were considerably lower than they are today.' Following the increases in the world price of oil and the Australian government's policy to price new indigenous oil supplies at the world parity price, it seemed that natural gas was being undervalued. A vigorous debate ensued. One side maintained that gas should also be priced on the domestic market to reflect the value of LNG in the world market. A similar view asserted that gas ought to be priced at the energy-equivalent value of crude oil.