Why Australia Needs a Domestic Gas Reserve
Recent geopolitical tensions involving Iran have once again exposed how vulnerable Australia’s energy system is to global events with significant volatility in domestic gas and electricity pricing.
Despite being one of the world’s largest exporters of LNG, Australia’s east coast gas market remains heavily exposed to international pricing. When global LNG prices surge, domestic gas prices follow — and electricity prices quickly react.
Since the escalation of tensions in the Middle East, the National Electricity Market (NEM) has experienced significant wholesale price volatility. Gas-fired generators often set the marginal price in the electricity market, so when gas costs rise, electricity prices can spike dramatically.
We have seen this before.
When Russia invaded Ukraine in 2022, Europe rushed to secure LNG cargoes from global markets. The result was a massive surge in gas prices, which flowed directly through to electricity prices across Australia. Governments ultimately had to intervene to stabilise the market.
The fundamental issue remains the same today: Australian consumers compete with global buyers for Australian gas.
Western Australia addressed this risk years ago through a domestic gas reservation policy requiring LNG projects to reserve around 15% of production for local supply. The outcome has been significantly more stable domestic gas pricing compared to the east coast.
Establishing a national domestic gas reserve could deliver several benefits:
• Greater energy security
• Reduced exposure to global LNG price shocks
• More stable electricity pricing
• Improved competitiveness for Australian industry
Gas will remain a critical balancing fuel in Australia’s electricity system as the energy transition continues. Ensuring reliable and affordable domestic supply is therefore essential not just for gas consumers, but for the stability of the entire electricity market.
Global conflicts will continue to influence energy markets. The real question is whether Australia chooses to remain exposed to those shocks — or builds a system that better protects domestic consumers.