A senior University of Wollongong researcher has dismissed claims made by gas company AGL that Illawarra manufacturing businesses could run out of gas in 2016 if the coal seam gas industry isn't allowed to flourish.
The report, released by AGL on Thursday, said NSW could "experience up to 21 days of gas supply shortages from winter 2016", which would "cause disruption" to manufacturing businesses.
The paper highlighted the Illawarra as likely to be affected, due to its reliance on the industry. It also advocated for the development of the Gloucester gas field on the Mid-North Coast, saying it would be able to supply about 20 per cent of the state's gas needs, none of which would be exported.
However, Dr Geoff Kelly from UoW's Sydney Business School, said based on the laws of international supply and demand, the gas company's argument lacked logic.
"Proponents of CSG development have argued that by extending [natural gas] supply in Australia, local prices will be held down," he said. "There is not a lot of logic to that. If rational gas producers in Australia can access international markets with higher prices than local markets ... they will do so.
"The only thing which would prevent that would be if a gas reservation policy ... were implemented - and that is unlikely."
Dr Kelly said a form of a gas reservation policy had been introduced in Western Australia, but gas companies were likely to strongly oppose it in NSW.
"Local consumers will see an increase in natural gas prices unless regulatory steps are taken to limit that," he said.
"The only state where that has been considered is WA where the government maintains a gas reservation policy to keep some part of new developments for local use - and hence through maintaining local supply, keep local prices down.
"It has yet to be seen the long-term effects of that policy, and the gas industry is arguing strongly against it."