Does more gas supply mean cheaper power bills for Australians? Here's what we know

Australia Broadcast Center

02-05-2025

Australia's two major political parties have promised that they would do more about gas prices in a bid to reduce the cost of living if elected.
To understand the hot topic of energy, Australians need to understand how the gas market operates.
So, what sets the gas price, and how could the federal government intervene in the trading market?
Let's break it down.
Does more gas supply mean cheaper power bills?
This is not a simple question to answer, said Eric Lilford, an associate professor from the Minerals, Energy and Chemical Engineering School at Curtin University.
"In summary, more gas produced domestically will not bring gas prices down, unless there is a regulatory capture of that additional gas that guarantees increased volumetric flows into the domestic market," he told the ABC.
"Note that gas producers are not philanthropic organisations, and are driven by profits.
"They need to appease shareholders and accommodate other stakeholders."
Samantha Hepburn, a director of research who specialises in energy regulation and policy at Deakin University, said it was pointless to bring more gas into the market "in the absence of strong export controls".
"The main reason for gas price hikes is that surplus domestic uncontracted gas is being sold on the international market, and domestic consumers must compete with international prices," she said.
What are Australian gas markets?
The gas market in Australia is made up of three distinct regions — the eastern gas region, the western gas region and the northern gas region.
Liquified natural gas plant and LNG ship on Curtis Island, Queensland ( Supplied: Photopia Studio )
An interconnected gas grid connects all of Australia's eastern and southern states and territories — Queensland, New South Wales, Victoria, South Australia, Tasmania and the Australian Capital Territory.
The gas basins that supply this market contain around one-third of Australia's gas reserves.
While traditionally focused on domestic sales, this market has undergone structural change as the Queensland gas export industry has developed. Western gas region Infrastructure at a gas plant in Western Australia. ( ABC News: Daniel Mercer )
The gas basins of the western gas market contain over half of Australia's gas reserves.
This market is heavily focused on exports but also supplies domestic consumption in Western Australia. Northern gas region Territory Generation's Channel Island Power Station at Wickham NT. ( Supplied: Territory Generation )
The northern gas market is Australia's smallest producer.
Its basins provide gas for export and also for domestic consumption in the Northern Territory.
Meanwhile, Australia's two wholesale electricity markets are operated by the Australian Energy Market Operator (AEMO):
the National Electricity Market (NEM), which operates in eastern and south-eastern Australia, and
the National Electricity Market (NEM), which operates in eastern and south-eastern Australia, and the Wholesale Electricity Market (WEM), which operates in Western Australia.
The NEM runs on one of the world's longest interconnected power systems, delivering power to over 23 million Australians.
Is gas the main fuel to generate electricity?
No, it is not.
In the NEM, which delivers about 80 per cent of Australia's electricity consumption, 41 per cent of the generation supply was black coal as of December 2024, while gas only contributed 5.3 per cent.
Why does Australia have abundant gas reserves but is facing gas shortages?
Australian gas is a business, Dr Lilford said.
"Decisions drive profits," he told the ABC.
"The producers preferentially sell into offshore markets due to the [higher] margins they can make vis-a-vis domestic sales.
"Hence, most production is sold into offshore markets."
About 80 per cent of Australia's gas is exported as liquefied natural gas (LNG), according to the Australia Institute.
In 2024, the International Energy Agency reported that Australia was the world's second-largest gas exporter, following the United States.
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What sets gas pricing in the Australian market?
Gas prices in Australia, especially on the east coast market, are heavily impacted by global market trends.
"Since gas producers have the option to sell into international markets via LNG export terminals, domestic prices often reflect international LNG prices," Dr Lilford said.
"As a result, east coast gas prices are closely linked to, and can be driven by, fluctuations in global LNG markets."
Gas prices in Australia, especially on the east coast market, are heavily impacted by global market trends. ( ABC News: Danielle Bonica )
Ms Hepburn added that east coast wholesale gas prices were determined by supply, demand, the cost of production and regulation.
"It is important to distinguish between contract and wholesale markets," she said.
"On the east coast, only a small share of gas is traded because most goes to fulfil long-term contracts.
"Contracts for domestic purchasers usually incorporate a premium over wholesale spot prices due to [the] certainty and longevity of supply."
She said prices were negotiated and would be subject to regulation.
"Domestic wholesale prices on the east coast, for instance, purchases without a contract, are often high because the three Queensland LNG projects have linked domestic prices for this surplus gas to international [prices]."
The three LNG plants on Curtis Island are owned by QGC Pty Ltd, Santos GLNG, and Australia Pacific LNG, exporting roughly 5 per cent of the world's LNG when fully operational.
What could governments do to bring gas prices down?
Dr Lilford said it would be challenging for any government to dictate how a commercial business runs.
"Trade (gas) is set through supply and demand fundamentals, unless a government dictates that the product being the subject of supply and demand is 'strategic,'" he said, "Gas is not defined as being 'strategic', so market forces play.
"However, governments can provide subsidies, concessions, offsets, tax (or royalty) breaks, that will incentivise producers to supply this product into the local market.
He added that there was also a sizeable cost associated with the liquefaction and transport aspects of gas.
"If a local producer can obviate those costs and still recognise an adequate return on investment, the local market will be economically attractive."
Are there controls over gas exporters?
"There is no direct export control on the east coast [market]," Ms Hepburn said.
"In the west coast market, there is a reservation mandate of 15 per cent. The only regulatory measure on the east coast is the Australian Domestic Gas Security Mechanism (ADGSM).
"It is a measure of last resort and must be triggered by November of the previous year, where a shortfall is forecast.
"If so, the ADGSM can require LNG projects to limit exports," she added, "To date, the ADGSM has never been triggered."
No direct gas export restriction is in place on Australia's east coast market, according to experts. ( ABC Kimberley: Ben Collins )
In 2022, the federal government implemented an emergency price cap — $12 per gigajoule for domestic purchasers.
This ended in December 2023, and the federal government replaced it with the Gas Market Code for the wholesale domestic market.
The Australian Competition and Consumer Commission (ACCC) is set to review the price code this year.
Is there a cheaper way to generate electricity than gas?
Yes, there is.
However, Dr Lilford said Australia needed to "look beyond cheaper" to the core of sustainability, reliability and efficiency.
"We need a mix of energy solutions, since no-one energy system will provide everything we need," he said.
"We don't have that yet, and we are not heading in the direction to achieve that either, even looking out to 2050.
"We should be addressing long-term paradigms to support affordable sustainability, not short-term promises to secure votes."
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