Business Environment Profiles - Australia
Published: 16 December 2024
Domestic price of natural gas
181 Index
7.2 %
This report analyses the price of natural gas. The price of natural gas is measured by the natural gas input price index for manufacturers and is sourced from the Australian Bureau of Statistics. This measures the price of natural gas delivered to factories and includes all related costs such as distribution fees and non-deductable taxes. The historical data for this report uses the average value of a quarterly index over each financial year and is measured in index points. The base year for the index is 2012.
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IBISWorld forecasts the domestic price of natural gas to decrease by 5.6% in 2024-25 to 180.8 index points. This trend follows the spike reported in 2022-23, attributable to strong demand for liquefied natural gas (LNG) in export markets and the Russia-Ukraine conflict. Russia is among the world's largest producers of natural gas, with the conflict and resulting commodity shortages encouraging European and Asian gas buyers to look for alternative gas supply sources. The Federal Government has shown a strong willingness to intervene in the domestic gas market. In March 2023, the government reformed the Australian Domestic Gas Security Mechanism (ADGSM) to incorporate additional authorities, including the ability to review Australia's domestic energy needs quarterly and to curb LNG exports to satisfy local demand. Shortly before, the government signed a new Heads of Agreement with east coast LNG exporters on 29 September 2022. LNG exporters committed to offering uncontracted gas to the domestic market to mitigate a domestic gas supply deficit risk. An anticipated increase in supply and a continued decrease in demand are expected to lower natural gas prices in 2024-25. In March 2024, APLMG affirmed its commitment to augmenting domestic gas availability by entering into a sales agreement amounting to 11.2 petajoules with both Origin Energy and Shell. Europe's demand for natural gas is projected to keep declining; over the past two years, it has already fallen by 20%. This reduction is due to energy security mandates and climate policies that limit natural gas usage. These factors of increased supply and reduced demand collectively contribute to downward pressure on natural gas prices.
The Australian gas market can be split into three distinct markets: the western, eastern and northern gas regions. The western gas region covers Western Australia, which benefits from lower prices than other states due to its high level of gas reserves. The northern region covers the Northern Territory, while the eastern gas region covers the rest of Australia, including Queensland, New South Wales, the Australian Capital Territory, Victoria and Tasmania. The Northern Gas Pipeline connected the northern and eastern gas regions in 2018, while the western gas region remains unconnected to the eastern states. The Australian gas market has changed over the past decade due to the development of multiple major LNG export facilities, which has led Australia to become one of the world's largest exporters of LNG. Consequently, domestic natural gas prices have become increasingly exposed to international supply and demand conditions. As global gas prices have historically been higher than domestic prices, linking these markets has caused domestic gas prices to rise over the past decade.
Due to concerns over gas availability for domestic users, the ADGSM was introduced in July 2017 to provide an incentive for LNG producers to supply domestic markets. This mechanism allowed the Federal Government to restrict gas exports when domestic supply is threatened. The mechanism led to increased gas allocation for domestic markets, which has helped alleviate supply concerns over the past five years. Initially set to expire on 1 January 2023, the ADGSM has been extended to 1 January 2030. The completion of the Northern Gas Pipeline, linking the Northern Territory and Queensland, has also contributed to greater gas availability in the eastern gas region. A subsequent Heads of Agreement with east coast LNG exporters was reached in January 2021 to ensure competitively priced gas for domestic users by offering uncontracted gas to the domestic market before selling into export spot markets. Like ADGSM, the agreement's expiry has been pushed back from early 2023 to 1 January 2026.
The domestic price of natural gas has been volatile over the past five years. Domestic gas prices rose over 2018-19, as a rising share of natural gas production was exported rather than processed for the domestic market. Improved domestic supply conditions and subdued demand caused by the COVID-19 pandemic then caused domestic gas prices to fall over the two years through 2020-21. However, shortfalls in global energy markets and recovering demand conditions have reversed these trends, with domestic gas prices rising strongly over the three years through 2023-24. Despite supply gaps expected to be filled in 2024-25, overall, IBISWorld expects the domestic price of natural gas to increase at a compound annual rate of 7.2% over the five years through 2024-25.
IBISWorld expects the domestic price of natural gas to decline by 7.0% in 2025-26, to 168.1 index...
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