Australia is set to become the world's largest liquefied natural gas exporter. We have a remarkable network of pipeline infrastructure running up and down our east and west coast with tens of thousands of kilometres of pipes delivering enormous daily gas flows from five basins to different demand centres. And the natural gas industry could contribute $53 billion to Australia's economy each year by 2017. Things couldn't be better for Australia when it comes to natural gas.

What is the one conclusion you could not possibly draw from this exciting and optimistic scenario? Shadow Energy and Resources Minister Ian Macfarlane reckons 'New South Wales will run out of natural gas - literally, run out of gas - by 2016 if they don't get some of their coal seam areas developed'. That's right, Australia has managed to create a domestic gas shortage in the middle of a gigantic natural gas export boom.

Macfarlane's claim is a bit iffy. What he really means is that NSW will have to import some natural gas because it doesn't produce quite enough for its own use. But that's the case already, so it's just political scaremongering.

The real story here isn't a shortage of natural gas. It can't be when you're exporting billions of dollars of the stuff. This is a story about Australia's natural gas market changing from local demand and supply at cheap prices to become part of the global gas market. And that means both supply and demand has to take the international price as given. Unfortunately for you and us, the international price is damn high.

In other words, we've gone from making cheap gas for ourselves to making money by flogging the stuff overseas at four times the price. But when you can sell at four times the price overseas, why sell to the locals who can't afford it at that price? Hence the 'shortage' of natural gas here in Australia.

How did Australians end up having to compete with the Japanese and Chinese for our own country's gas? It's all got to do with a rather funny set of circumstances that will end up being not so funny for you and us. In an effort to secure the profits, future gas providers signed long term supply contracts with countries paying top dollar. But investment seems to have stalled and come up short in Australia. So the natural gas industry finds itself with enormous contracts to fulfil. And the local gas buyers find themselves having to compete on the world market at prices that scare the begeebies out of them.

So whose gas bills are set to spike? We Victorians represent two thirds of the gas used for residential purposes and the Grattan Institute estimates our average household gas bill will rise by $170 a year. But the rest of you aren't off the hook. Gas is mostly consumed by power plants and industry. Do you think they'll bear the cost or pass it on to you?

Gas Consumption 2011

But the Daily Reckoning isn't about telling you why your gas and power bill is about to rise. The interesting question is this: who will own the natural gas companies that benefit and how much do you have to pay to own them?

Dan Denning has been on that case for years. But most natural gas plays are speculative punts. Another opportunity to profit from is Australia's gas pipeline infrastructure, which may be extensive, but we're talking about becoming the world's biggest exporter in just a few years. So there's a bottleneck in the distribution network. And it centres around one big company - APA Group. Dan Denning reckons 'if that's where the bottleneck is, then you want to own the bottle.'

It's no coincidence the Weekend Australian Financial Review had APA Group's Managing Director on the front cover and another page and a quarter on the company's prospects halfway through. The AFR reckons Mick McCormack is as good at carving up the pipeline industry as he is carving up a cow. Which his local butcher says he's very good at. His latest victim is fellow listed pipeline owner Envestra, which APA hopes to merge with. Take a look at the natural gas pipelines of two companies in the AFR and you can only reach one conclusion. APA knows there's a gas boom coming and it's ready to make the most of it.

It's ironic that investing in infrastructure - every economist's favourite solution to economic difficulty - can reshuffle an economy so radically. Australians used to benefit from cheap natural gas being kept at home. Now it is exported at a far higher price, but that means we have to bid at international prices. The natural gas industry and its distributors will be collecting all the gain while the rest of us feel the pain.

If only Australia had made the most of the enormous capital flows into our country from the yield hunters overseas. Instead of gas export terminals, we should have nuclear power plants, autobahns and even more craft beer breweries. Australians already pay the world's highest price for the world's worst beer, so we could be sure any export boom wouldn't dent the locals' household budget and nobody overseas would want our beer anyway.

This was confirmed by the Solimano family, who moved into our flat while we were in Queensland. The eight Peruvians from Canada and Texas were still there when we got back. Amongst them were two Mafia hitmen, a doctor, a sheriff and a chippy from Sydney who isn't Peruvian.

You know what their biggest impression of Australia was? 'The internet is so slow here.' Yes, that's what Australia is famous for around the world - our slow internet. Their second impression was that Carlton Draught deserves to be poured down the drain.

At home in Houston, Solimano patriarch Mario uses his phone's internet in the car to talk to his wife on FaceTime. Here he can't even download Game of Thrones at a decent quality using a wireless modem.

It was embarrassing enough to discover our global reputation for poor bandwidth, but the kicker came when the Solimanos claimed the internet in their former home Caracas, Venezuela was faster years ago. We're more backward than Hugo Chavez's experiment in South America. At least we had cheap gas once...

Regards,

Nick Hubble+
for The Daily Reckoning Australia