A controversial coal seam gas project in northern NSW may do nothing to ease gas prices for the state, a new report says.

The Narrabri gas project, owned by energy company Santos, has been promoted by the NSW government as central to meeting an expected shortfall in supplies from 2015.

But energy analyst Tim Buckley says in a report the multibillion-dollar project may not reduce gas prices for NSW residents.

And he says NSW gas may instead end up flowing to Queensland, where giant export facilities are desperately short of gas for overseas sale.

Santos wants to mine coal seam gas from large reserves in and around the Pilliga Forest.

The NSW government has called the proposal a Strategic Energy Project that, if approved, will be central to ensuring secure gas supplies for the state.

In his report, Mr Buckley, the director of energy finance studies at the Institute of Energy Economics and Financial Analysis, questions whether gas extracted in NSW would be piped to Queensland, where Santos has an interest in one of three major export facilities due to start shipping gas next year.

“Let’s not forget Santos’s first obligation is to maximise profits for its shareholders,” Mr Buckley said.

The three liquified natural gas export plants, built at Gladstone in Queensland, are expected to force up domestic gas prices due to the huge demand for the fuel overseas, and investors’ needs to make a return on the multibillion-dollar plants.

Santos says NSW, which imports 95 per cent of its gas, is likely to face much higher gas prices unless new domestic supplies are introduced and Narrabri could meet 25 per cent to 50 per cent of the state’s needs.

But in his report, Mr Buckley says Narrabri gas might not halt a doubling or even greater rise in wholesale gas prices.

Using modelling, Mr Buckley estimates gas from the Narrabri project would still arrive in Sydney at between $7.34 and $9.31 a gigajoule – well above the current $3-$4 average.

He also noted there was no obligation for Santos to send gas to Sydney if better prices could be achieved exporting through Queensland.

A spokesman for NSW Resources and Energy Minister Anthony Roberts said Santos had committed to making gas available to the state market and the government’s preference was for gas to stay in NSW.

However, there was no contractual obligation.

A Santos spokesman was asked if NSW gas could flow to Queensland but did not directly answer the question.

“We have repeatedly stated that the gas will be made available for the NSW market,” he said.

A new pipeline would deliver gas from Narrabri to the NSW domestic market, the spokesman said.

The IEEFA describes its mission as accelerating the transition to sustainable energy sources.

By Peter Trute