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Gas price hikes: Aussies warned of higher prices

Gas heater close up and fifty dollar notes.
Higher gas prices will drive up the cost of keeping your house warm if you rely on gas for heating. (Source: Getty)

Australian households and businesses have been warned to expect natural gas price hikes as the conflict in Ukraine aggravates existing pressures on local gas markets.

Higher gas prices are likely to be felt keenly by Victorians, who rely heavily on gas to keep their homes warm during the cooler months, as well as lower income and vulnerable households.

Tennant Reed, head of climate, energy and environment policy at the Australian Industry Group, said Australia’s natural gas supplies were already under pressure and the conflict in Europe could make things worse.

The main complicating factor is Russia is a major supplier of gas to Europe.

While European countries initially tried to enforce economic sanctions on Russia without disrupting energy supplies, escalating threats from Russia has left European countries with no choice but to go without Russian gas or use substantially less.

“So that has a few implications,” Reed said.

He said the easiest thing for European companies to do in the short term is to buy gas from somewhere else.

“So this will be continuing and substantially extending this period where there is too much demand chasing too little supply,” he said.

Europe has also been responding to shortfalls in gas supplies by pledging to fast-track the clean energy transition and burning more coal.

For places like the UK, there’s concern that gas supply disruptions could lead to annual household energy bills reaching £3,000 (AU$5,430).

Will this make running my gas heater super expensive?

Reed said it’s hard to determine exactly how the international disruptions to gas supplies will impact the daily price of gas in eastern Australia.

However, if oil and gas prices remain high overseas for a protracted period, Reed expects these inflated prices to trickle down to Australia to some extent.

Even before Russia’s invasion of Ukraine, Australia was already facing domestic gas supply issues.

A report released by the Australian Competition and Consumer Commission (ACCC) in February found contract prices for major gas users (major industrial companies and the like) had already crept up from $6-8 a gigajoule (GJ) in late 2020 to about $7-9.50 by mid-2021

ACCC chair Rod Sims forecasted a gas shortage Australia’s southern states starting as soon as this year.

“Southern states will be reliant on gas from Queensland until additional supply from new sources comes on,” Sims said.

While large-scale buyers lock-in gas at set prices through long-term contracts, the danger is when these contracts expire because big gas users then need to resign contracts at much higher prices.

This may drive up gas prices for households and small businesses.

Reed pointed out the wholesale price of gas is only part of a household’s gas bill for heating and cooking. Consumers also pay for the distribution costs of transporting gas through pipelines.

As such, the increase in wholesale prices would only affect a portion of a household’s bill.

However, he said if wholesale gas prices increase from around $10 a GJ to more like $20 or $30 a GJ it’s “definitely going to be noticeable”.

“Especially for Victorian households that tend to use a bunch of gas for heating in winter.”

He said lower income and vulnerable households will be hit hardest.

Big industrial and commercial gas users will also feel high gas prices keenly as most of their bills are wholesale costs, he added.

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