What Determines the Cost of Household Natural Gas?
Home » What Determines the Cost of Household Natural Gas?
In 2014, natural gas prices on Australia’s east coast were around AUD $4 per gigajoule. Within three years, they had jumped to AUD $20 per gigajoule, sparking anger among voters, companies and politicians. Rising natural gas costs in Australia have unsurprisingly fed into higher household electricity bills and complaints about regulation.
Why did gas prices in Australia rise in recent years?
By most accounts, the era of cheap natural gas in Australia is well and truly over. Most natural gas on the east coast over the last decade was produced as a byproduct of pumping crude oil in the south. Cities such as Sydney, Melbourne, Brisbane and Adelaide benefited from cheap gas because the oil effectively subsidised gas production. Once the oil ran out, the price of producing gas shot up, says Reuters. Moreover, the east coast has only about 10 years of proven gas reserves at current production levels. Also, it has emerged that gas reserves were grossly over-estimated in eastern Australia.
To reduce gas prices, the east coast would have to invest far more into exploration, distribution (through pipelines) and processing. This would cost taxpayers billions of dollars. “In other words, this will be expensive gas, unless the [Australian] government is prepared to back its gas-led recovery plans with massive subsidies”, Reuters said in March 2021. Alternatively, eastern Australia could import gas (in liquefied form) from Western Australia, which has far more reserves. Either option would still add to gas prices.
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What is the average Australian gas bill?
The average quarterly gas bill for a household in Australia was around AUD $179, according to a survey by Canstar Blue in January 2021. Households in Tasmania reported the highest average gas bills, while those in Western Australia reported the lowest.
In May 2021, Finder Consumer Sentiment Tracker found that the average quarterly household gas bill in Victoria was AUD $234.20, while the lowest bills were also found in Western Australia at AUD $133.70. These numbers are estimates, and it is likely that most household gas bills will fall within these ranges.
Have natural gas costs fallen in Australia recently?
Gas prices have fallen across eastern Australia in recent months after rising until 2017. Some have said that this is due to government intervention or private investment. But, “the fall in gas prices has been in part driven by record low oil and LNG spot prices exacerbated by the COVID-19 pandemic”, says the Australian Competition and Consumer Commission (ACCC). In other words, the pandemic caused a big fall in worldwide demand for gas. That, in turn, has helped prices fall very quickly.
Analysts also warn that about AUD $56.2 billion of gas pipelines under construction or planned in Australia could become “stranded assets” as the world moves to cut carbon emissions. Fossil fuels have already become more expensive to run compared to clean energy. Yet, the Australian government continues to invest in gas power stations despite warnings from the National Energy Board chair that they do not make economic sense.
The problem for Australian gas in the future is not the lack of supply, but falling demand. While it may reduce prices further, it also creates an expensive headache for Australian taxpayers.
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