Households will have to pay up to $300 more a year but Grattan Institute says export boom behind the hikes is ‘too good to miss’

Australia faces an imminent gas price shock that will increase the average bill of some households by $300 a year, a new report argues, but governments should defy mounting calls from industry, unions and consumer groups to “do something”.

Price hikes have already started and will hit hard over the next few years, adding more than $300 a year to the average household gas bill in Melbourne (where 90% of households use gas for multiple purposes) and $100 a year in Sydney and Adelaide.



Industry, especially the already struggling manufacturing sector and smaller businesses with high energy use, will also feel the pain. For example a dry-cleaning business using around 500 gigajoules a year could see its gas bills increase by $2,500 a year. Citing research by BIS Shrapnel, the Australian Workers Union has claimed more than 200,000 manufacturing jobs could be lost as a consequence.



But in the report, Gas at the crossroads, the Grattan Institute think tank argues the reason for the price rises – Australia’s booming gas export industry – is of great national benefit. It argues the government should not “do” anything about the domestic price hikes, except to make sure the gas market is working effectively.



“By 2018 east coast gas, added to growing Western Australian supplies, could create the world’s biggest gas export industry, worth $60bn a year. The economic benefits that will flow as a result represent an opportunity too good to miss,” the report argues, even though “the downside is that domestic gas prices will increase to compete with the higher prices that other countries are prepared to pay for our gas.”



The report’s author, the institute’s energy program director Tony Wood, specifically urges the governments to reject the AWU’s proposed solution, backed by the ACTU and major manufacturers including Alcoa and Australian Paper – to reserve a percentage of gas for domestic use.



Western Australia already reserves 15% of its gas for the state’s own needs – a policy that has bipartisan support in the west – but Wood argues WA’s own regulator recently found that policy was not required and would “inhibit” the development of more WA gas reserves.



The report also rejects the demand from the Australian Industry Group for a “national interest” test before governments approve future big LNG export projects – with the adequacy of domestic supply being one of the tests. Wood insists inadequate supply is not the problem, just increased prices as big LNG projects begin exporting and the domestic price rises to match the international price.



It also urges governments to reject a recent plea from the Consumer Utilities Advocacy Council to subsidise households upgrading the energy efficiency of their appliances, saying this should not be the role of government. He argues governments should consider increasing their concessions for “vulnerable” low income households that will struggle to cook and heat their homes as prices rise.

Industry minister Ian Macfarlane has argued NSW faces an imminent gas shortage and has advocated a new pipeline from the Northern Territory as part of the solution, as well as an end to state government’s decision-making impasse whether or how to develop controversial coal seam gas reserves.



With the Victorian government also extending its moratorium on CSG approvals until after the November state election, the Grattan Institute argues the impasse between the industry and the anti-CSG campaign does need to be urgently resolved.



Household price rises will vary dramatically around Australia, the report found. Melbourne, most reliant on natural gas, can expect annual increases of $300 or $400 for high use households. But high use households in Sydney will pay only around $225 a year cost increases, in Adelaide $200 and in Brisbane around $65.



The report predicts some households might switch to cheaper electric appliances, but a “dash from gas” is unlikely because of the high upfront costs of replacing appliances before they wear out. It confirms that rising gas prices will be another factor pushing Australia towards continued reliance on high-emitting coal fired power.



International gas price rises have been triggered by the reduced use of nuclear power after the Fukushima disaster in Japan, climate change concerns about coal fired power, and tensions between Europe and Russia - a major gas supplier.

