Why is gas so expensive?

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Natural gas is generally considered to be cheaper than electricity, but as gas becomes increasingly expensive, some households are beginning to reconsider. Some states, such as New South Wales, are the most severely affected, but right across Australia, households and businesses are asking – why are gas prices so high?

Natural gas is largely a function of supply and demand. Prices will rise where demand is high or supply is limited and vice-versa. To many Australians, it might look like gas is going out of fashion, but in fact the trend is quite the opposite, with gas now accounting for a quarter of global energy consumption thanks to strong growth in Asian and Middle Eastern nations. As can be seen by the graphs below, Australia has, and will continue to expand its gas projects and increase gas export targets to meet the growing international demand. But some experts say this is what is causing prices to climb.

RBA graph
Source: Australia and the Global LNG Market – Reserve Bank of Australia

Australia is a large exporter of natural gas and one of the few with almost no export limitations on Coal Seam Gas (CSG) which is purified to produce natural gas. Energy hungry countries such as Japan and China are demanding more and more gas, and with this, the price goes up. Since these countries are willing to pay more, natural gas generators are exporting more gas, and leaving less within Australia. This pushes supply down and forces the price up.

Gas shortages are becoming a very real concern. Former Energy Minister Ian Macfarlane said earlier this year that “NSW is facing a situation now where it will run short of gas by 2016”. Pressure is being put on the state government to reinvest in CSG exploration, however the Australian Energy Market Operator says this is just hysteria and there are no gaps in supply for the short-term outlook.

Regardless of whether or not we are facing a gas ‘crisis’, some households might find gas is becoming a bit expensive. Whether you use natural gas or LPG (cylinder gas), your energy retailer is responsible for purchasing your supply at the best wholesale rate. If you don’t think your gas retailer is doing enough for you, check out the Canstar Blue natural gas customer satisfaction star ratings to see what Australians have to say about their retailers.

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