Australia’s gas market is shrinking across households, industry and electricity generation, but governments are still planning around a future in which gas remains a major part of the energy system, according to a new report from the Grattan Institute.
The report, Out of Gas: Managing the Decline of Gas in Australia, argues that gas use has already passed its peak and that policy should shift from maintaining consumption to managing a long-term decline. A companion article by Grattan Institute Energy Program Director Alison Reeve says the common political phrase that gas is an important part of the energy transition obscures the scale of change that is already underway.
According to the institute, gas consumption has fallen since 2020 by 16 per cent in households, 10 per cent in industry and 12 per cent in the power sector. LNG exports are also expected to contract in coming years after likely peaking in 2022.
A transition with an endpoint
The report argues that governments need to acknowledge that the gas transition ultimately leads to lower gas use across the economy, with electricity replacing many current applications. It recommends setting clear phase-out dates for residential gas use and creating predictable pathways for businesses to plan future investments.
Reeve writes that uncertainty is already affecting investment decisions.
“If governments don’t make the tough calls soon, Australia’s gas transition will be chaotic and costly.”
The report argues that investors are reluctant to fund new gas-fired generation because future demand and policy settings remain uncertain, while gas network operators face declining customer numbers and increasing pressure on their business models.
Renewable gases seen as part of the solution
While electrification is presented as the primary pathway for reducing gas use, the report says some industries will continue to require gaseous fuels and feedstocks.
These sectors include fertiliser production, explosives manufacturing, some industrial heating processes and gas-fired power generation used as backup during periods of low renewable output. For these applications, the report points to renewable gases such as green hydrogen and biomethane.
The challenge is scale.
Grattan’s analysis notes that Australia currently produces only about 0.1 petajoules each year of green hydrogen and biomethane, while federal targets call for 60 petajoules of green hydrogen and 10 petajoules of biomethane by 2030.
Ben Jefferson, an Associate in the institute’s Energy and Climate Change Program, said stronger policy support would be required to close that gap.
“There’s not a moment to waste. If we’re serious about both our emissions reduction targets and our manufacturing capacity, we need far more renewable gases than Australia is on track to produce. And we need them very soon.”
The report recommends grants, finance programs and a national renewable gas obligation requiring large gas users to purchase certificates linked to renewable gas consumption.
Infrastructure faces declining demand
One of the report’s central concerns is how gas networks will operate as customer numbers continue to fall.
The institute warns that fewer customers could lead to higher charges as network operators seek to recover fixed costs from a shrinking user base. Rising prices could then encourage more customers to leave the network, creating further pressure on remaining users and infrastructure owners.
To address this, the report recommends reforms that would allow gas networks to be progressively decommissioned and proposes sharing the costs between governments, consumers and infrastructure owners.
It also calls for closer integration between gas and electricity planning to avoid over-investment in one network while under-investing in the other as electrification accelerates.
