The Turnbull government’s intervention in the gas market has increased supply to domestic users, but Australia’s competition watchdog says prices remain too high and the market is still not functioning effectively.

In a second report to the government on the state of the gas market, the Australian Competition and Consumer Commission (ACCC) painted a mixed picture in the wake of the Coalition’s threat to restrict gas exports to help deal with a domestic shortage.

It noted that it forecast in 2017 a likely substantial domestic shortfall in 2018 and a spike in prices because of rollicking export demand for liquefied natural gas but, after the government secured a non-binding agreement with the major gas producers, more product was made available domestically.

Major gas companies agreed in September to increase supply to avoid a domestic shortfall in 2018, a move which meant the Turnbull government didn’t have to impose its threatened export trigger.

The competition watchdog said there had been some improvements in the availability of gas and prices offered to users in the east coast market as a consequence, “however, the east coast gas market is still not functioning effectively and domestic prices are still in excess of the ACCC’s estimates of benchmark prices”.

The assessment suggested large commercial and industrial gas users had benefited from increased supply and a fall in prices, but the experience of smaller users had been “somewhat different”.

The ACCC said smaller users didn’t have the heft to enter direct negotiations with gas producers, so had to rely on retailers for their supply. “They informed the ACCC that prices offered to them by retailers have come down from around $18-19/GJ in the first half of 2017 to about $11/GJ or less, however, in some cases they are still only receiving offers from one or two retailers, with some users reporting that retailers continue to claim to have no gas available,” the report said.

It said retailer behaviour indicated the market was not functioning optimally, and the failure to provide reliable supply put the viability of smaller businesses in jeopardy, “potentially creating significant effects in local economies and beyond”.

The report said some retailers were concerned that, given the current high gas prices, if they purchased large quantities of gas before signing up customers, they might not be able to sell it all under long-term supply agreements and would have to sell it at lower prices on the domestic spot markets instead.

“Some retailers are also concerned that, at current gas prices, commercial and industrial users are at higher risk of market exit, which could again put the retailer into the position of having to sell undelivered quantities of gas into the domestic spot markets.”

The ACCC said that while the diversion of exports into the domestic market by LNG producers has resulted in short-term market improvements, “the longer-term issues in the east coast gas market remain”.

The treasurer, Scott Morrison, welcomed the results of the ACCC inquiry and said the government intervention had “delivered a significant win for many Australian businesses that were either struggling to afford high gas prices or to secure a long-term contract”.

Morrison said there was clearly more to do to address the issues the ACCC identified.

The treasurer also used the report to resume his calls for the states to end their bans on gas exploration and development, and he singled out Victoria. “The ACCC’s estimates for benchmark prices show that Victoria sits at the top end of estimated prices and this is not going to improve easily, given demand outstrips supply,” Morrison said.

“The report reiterates the negative effects that moratoria and regulatory restrictions on onshore gas exploration are placing on the security of our future gas supply and pricing.”

“The solution for state governments which are inflicting the highest gas prices in the country on their households and businesses is literally under their feet”.