"In a worst-case situation we would be asked to offload, and the community then has really got to make the decision do they want to keep people in work or do they want to keep their houses heated," said Brickworks managing director Lindsay Partridge, recalling just such a situation in southern California in the early 1980s.

"The reason of course the price is up is because there's a shortage, so if there was an extended cold snap or there was some minor outage it would ricochet across the entire east coast very rapidly,"

Ben Eade, executive director of Manufacturing Australia, said the combined impact of the cold and the fifth LNG train starting up in Gladstone was placing "significant pressure" on short-term domestic gas markets, just as gas buyers had been warning.

"It's not just about the spiking prices: large gas users remain concerned about the risk to their operations of gas curtailment if sudden demand spikes exceed available supply on very cold days," Mr Eade said.

East Coast gas demand forecast and Brisbane Spot gas prices Jan 2014 to May 2016

Last Friday saw the first cold weather-driven demand "event", as termed by the Australian Energy Market Operator, when the spot gas price in Victoria exceeded $20 a gigajoule for a four-hour period. Prices spiked on Wednesday in Brisbane, reaching $11.95, while prices in Adelaide recently touched $18.99.

Historically, wholesale prices were typically $3-$4 a gigajoule, although in recent years contract tariffs have risen to $6-$8 a gigajoule or higher, if they can be secured at all.

Mr Partridge said Brickworks had only been able to lock in gas supplies to the end of 2017.


"No one will write you a contract beyond 2018 at any price, so that makes things very concerning," he said.

"If you've got a billion dollars invested in plant and equipment and all you can get is 18 months of gas then that is pretty scary."

As recently as October 2014, before the start-up of LNG exports from Queensland, wholesale prices were trading at near-zero, and some of the LNG ventures were selling gas at a loss or burning it off as waste.

Since then, the $27 billion Queensland Curtis LNG project built by BG Group has started up both its trains, as has Santos's $25 billion GLNG project. Origin Energy has started one of the two trains at its Australia Pacific LNG project, with the second to come online later this year. The ventures are causing a tripling of gas demand in the eastern states over a two-year period.

The head of the APPEA oil and gas industry group Malcolm Roberts noted that nearly all gas traded on the east coast was under long-term contracts, giving certainty about prices and volumes. He said the spot market usually accounts for only 1-2 per cent of gas traded daily and tends to be volatile, with Sydney prices ranging from $7.61-$28.81 over the past week, while prices in Queensland have been $9-$12.

"This highlights the urgent need to develop more gas supply and suppliers," Dr Roberts said. "AEMO has warned that new reserves must be developed by 2019. Conventional gas fields will begin to decline as early as 2017."

Mr Eade noted that some large manufacturers still use the short-term trading market to make up shortfalls in supplies. He said one large gas user needed to purchase a significant volume on the spot market in July, and based on the latest prices in Brisbane would need to pay over $15 a gigajoule. Manufacturing Australia's members include BlueScope Steel, Brickworks and Incitec Pivot.

In comparison, the LNG import price in Japan, a premium-price market in Asia, averaged $US7 per million British thermal units in May, or about $9.40 a gigajoule. US benchmark prices ar just $US2.87 per MMBTU, or about $3.85 a gigajoule.


"All of this was largely forecast, but its impact is being keenly felt now, and it underscores the pressures and uncertainty about gas supply and price amongst large users," Mr Eade said.

The fears of a damaging squeeze in gas comes after Tasmanian industry was plunged into crisis earlier this year by the failure of the Basslink power cable to Victoria, which took a financial toll on Rio Tinto, paper maker Norske Skog and South32 which had to cut consumption.

Consultancy EnergyQuest estimated the economic cost of the Tasmanian crisis at more than $560 million, excluding the losses by the industrial gas users.

"Similar supply interruptions in east coast gas markets would be extremely damaging," Mr Eade said.

He called on the Council of Australian Governments energy council to seriously consider the impact of rising gas prices on domestic industry at its upcoming meeting in July and to act quickly to implement the recommendations of the Australian Competition and Consumer Commission from its east coast gas inquiry.

"We need more gas development, we need a more efficient and transparent gas market and we need to understand exactly how demand might be managed if it exceeds supply in future cold snaps," he said.

Dr Roberts pointed out that states such as Victoria and NSW that opt out of developing their reserves would be more vulnerable, leading their industrial users "especially exposed," he said.