What is the price of gas in Australia?

The price of gas in Australia’s eastern states dropped from AUD $8-$14 per gigajoule (GJ) in 2019 to AUD $6-$8 per GJ by mid-2020. This is because gas prices fell worldwide in early 2020.1 However, gas prices in Australia are still too high, according to the Australian Competition and Consumer Commission. The regulator says the worldwide trend should have cut Australian prices more. Instead, domestic users of Australian gas still pay significantly more than international buyers.2

South Australia and the gas gap

South Australia does not produce much gas, so it is mainly sourced from Victoria, Queensland and the Cooper Basin.3

However, this is not the case for Western Australia. Gas bills remain cheap in that state.4 Western Australia produces more natural gas than any other state. It also exports the most.5 But the state government forces the gas industry to provide 15 per cent of this gas to Western Australians. This industry makes a lot of money from gas exports. This allows them to provide cheap gas to locals. Yet, no such policy exists in the other states.6

Why are natural gas prices so high?

The simple answer is gas exports. Australia is the world’s largest exporter of liquefied natural gas (LNG).7 As the gas industry sent more gas overseas, domestic prices increased a lot on the east coast. This is because there was less supply for Australian users.8 This theory is shared by both energy experts9 and businesses that use gas in Australia.10

The cost of exports in the gas market

For a long time, gas was also a cheap fuel in eastern Australia. This natural gas was a by-product of local oil mining.11 In recent decades, Queensland, in particular, began to mine more natural gas from coal seams and export it. This is an expensive process.12. To meet the new overseas demand, the export industry continued to invest in these costly gas sources.13

Max Phillips / Flickr

However, this industry was not globally competitive. Currently, the companies involved also supply the east coast of Australia with this same gas. But, these gas companies set the domestic price above the international prices. They do this to make money back on their investments in the export industry.14

Natural gas exports and the climate cost

Apart from the effect on prices, gas exports also have a climate cost. Natural gas mainly consists of methane. This a greenhouse gas. It warms the climate much more than carbon dioxide in the short term. Methane leaks all along the supply chain. These leakages occur more when the industry prepares natural gas for export and transports it.15

Furthermore, exporting gas is wasteful. The gas industry burns nearly 10 per cent of gas when they liquify it for export.16 In fact, the industry uses almost 80 per cent of Australia’s natural gas for exports or processing for export.17

Which countries does Australia export gas to?

Australia’s three biggest LNG customers are China, Japan and South Korea.18 However, all three have a net-zero emissions target. Therefore, these countries are unlikely to continue to want high methane emitting gas. That said, their demand for Australian gas will decline.19

Australian LNG producers already have more gas than needed. Their supplies are now above their current export contract commitments.20 Any more investment in LNG infrastructure will likely lead to stranded assets. This is especially the case because renewable energy has become cheaper. So, it has replaced the need for more gas to generate electricity.21

The future role of gas in Australia

Gas high prices in Australia means both households and industry have turned away from it.22 Australia’s use of gas has fallen 21 per cent since 2014. The decline of gas-powered generation has driven this. Renewables now produce 28 per cent of the energy in Australia’s eastern states. That is because gas cannot supply electricity as cheaply as renewable energies.23

The cost of batteries to store renewable energy has dropped quickly. There are now several large battery projects in Australia.24 Energy utility companies have announced plans to close coal-fired power stations. Rather than gas, they will replace them with renewable-energy storage batteries.25

This goes against the Australian government’s plans. It has pushed for more investment in gas projects.26

Will a gas-led recovery reduce prices?

The government wants companies to find and produce more gas in Australia. It says gas companies could then provide cheap gas to Australians.27 The problem is eastern states do not have cheap gas left. For example, there is a planned coal seam gas development at Narrabri, NSW. The costs of the gas for users will be no lower than AUD $8 per GJ, according to analysts. Other developments will be expensive due to the transport costs. One example is the Northern Territory’s Beetaloo Basin shale gas fields. They are far from the main gas users in southern Australian states.28

Gas prices and regulation

Instead of more gas, a better way to keep prices down in Australia is regulation. The government could force companies to provide Australians with a reasonable price for the gas we already have.29. This is also the case in Western Australia.30 Unfortunately, until now, any efforts to do so on the east coast have failed.31

Currently, gas companies have plans to import more gas from other countries. Of course, Australia only needs to import gas because it exports so much.32 Yet, there are doubts about whether this imported gas would be cheap. It is sure to be bad for the climate.33

Sources

  1. Canstar Blue. (2021). Wholesale Gas Prices are Down but Aussies Still Pay too Much. [online] Available at: https://www.canstarblue.com.au/gas/gas-prices-down-feb-2021 [Accessed 6 Apr. 2021].‌
  2. A.C.C.C. (2020). Domestic gas users paying too much. [online] Australian Competition and Consumer Commission. Available at: https://www.accc.gov.au/media-release/domestic-gas-users-paying-too-much.
  3. Australia, G. of S. (n.d.). South Australia’s gas supply and market. [online] www.sa.gov.au. Available at: https://www.sa.gov.au/topics/energy-and-environment/energy-supply/sas-gas-supply-and-market.
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  32. Robertson, B. (2020). Expensive, polluting and wasteful: Why more gas won’t help Victoria. [online] Available at: https://reneweconomy.com.au/expensive-polluting-and-wasteful-why-more-gas-wont-help-victoria-90197/ [Accessed 6 Apr. 2021].
  33. Hepburn, S. (2019). Australian plans to import gas are expensive, bad for the climate and utterly absurd [online] the Guardian. Available at: https://www.theguardian.com/australia-news/commentisfree/2019/oct/22/australian-plans-to-import-gas-are-expensive-bad-for-the-climate-and-utterly-absurd.