Australia needs a coordinated plan to manage the decline of gas use across the economy, according to a new report from the Grattan Institute.
The report, Out of gas: Managing the decline of gas in Australia, argues that gas demand is expected to fall as households, businesses and industry increasingly electrify, and warns governments must prepare for the transition rather than assume continued growth in gas consumption.
The leading think-tank, the Grattan Institute said gas has played a significant role in Australia’s energy system for decades, but changing technologies, lower-emissions alternatives and the shift towards net zero are reshaping its future role.
The report found that while gas will remain important in some sectors for years to come, demand is projected to decline over time. This will create challenges for governments, regulators and industry as gas networks, infrastructure and markets adapt to a smaller customer base.
Grattan warned that without a clear plan, Australians could face higher costs and inefficient investment decisions as gas demand falls.
The report recommends governments develop strategies to manage the decline of gas use, including supporting electrification where it is cost-effective and ensuring energy planning better reflects long-term demand trends.
It also calls for closer coordination between gas and electricity planning, arguing the two systems are becoming increasingly interconnected as more households and businesses switch to electric appliances and equipment.
According to the institute, a managed transition would help minimise costs for consumers, maintain energy reliability and support Australia’s emissions reduction goals.
Grattan said planning now for a future with lower gas demand would provide greater certainty for consumers, industry and investors while reducing the risk of stranded assets and unnecessary infrastructure spending.
The report has also advocated for seven key recommendations, it argues will minimise industry disruption and enable growth through alternative sources;
- Reduce demand for gas across the economy, with targeted policies across households, industry, and power generation, including phase-out dates for residential gas use.
- Accelerate growth of the biomethane and green hydrogen sectors with better targeted industry policy and a new national scheme to drive demand for renewable gases.
- Reform regulation and planning of gas distribution networks to enable and encourage the safe, progressive decommissioning of the network as households electrify. Share the costs between consumers, industry, and government through a grand bargain.
- Get market settings right to ensure there is sufficient gas-powered generation in the National Electricity Market.
- Better integrate gas and electricity planning to enable a least-cost transition away from gas by expanding the Integrated System Plan to include gas, and integrating the build-out of electricity networks with the phase-out of gas distribution networks.
- Prioritise demand-side measures to address future gas supply gaps by expanding the Australian Energy Market Operator’s ability to identify and use demand-reduction tools.
- Manage the LNG sector more actively to maximise its benefit to Australia. Prepare for a post-LNG economy by reforming gas taxes, requiring emissions cuts from LNG, and using industry policy to replace the economic contribution of LNG.
