Gas demand in eastern Australia has fallen to its lowest level in 25 years, excluding gas used for liquefied natural gas (LNG) production. In the fiscal year 2023-24, demand dropped by 32% compared to FY2012-13. This decline affected key sectors such as manufacturing, electricity, and residential use, marking a significant shift after a 40-year period of continuous growth. The drop coincides with the start of LNG exports from Gladstone, Queensland.
Since the launch of LNG exports, domestic gas prices have tripled, driven by the stronger link between LNG export prices and local prices. The largest reductions in gas demand have been seen in electricity and manufacturing sectors, both of which are more sensitive to price changes. Experts predict that gas prices will remain higher than pre-2015 levels for decades to come.
Manufacturing Sector Sees Sharp Decline
In the manufacturing sector, gas demand fell by 24% from FY2012-13 to FY2022-23, reaching its lowest point since FY1991-92. This decline reflects several factors: the closure of petroleum refineries, a reduction in minerals and chemicals processing capacity over the past decade, and the impact of higher gas prices. Smaller manufacturers, in particular, have struggled with the rising costs, leading to some plant closures.
Electricity Sector Cuts Gas Use Amid Renewables Growth
Gas consumption in the national electricity market (NEM) has dropped nearly 60% between FY2012-13 and FY2023-24. This decrease is largely due to the increasing share of renewables in the grid. Over this period, renewables’ share of generation in the NEM grew from 10.4% to 38.1%, while gas’s share fell from 11.5% to just 5%.
Residential Demand Falls, Especially in Victoria
Gas demand in households, particularly in Victoria, which accounts for about two-thirds of household gas use in eastern Australia, has also declined in recent years. Factors driving this trend include weather conditions, the shift toward electrification, and rising gas prices.
LNG Industry Drives Gas Consumption Growth
In contrast, the gas industry itself has seen growth in consumption, primarily due to LNG exports. Since Queensland began exporting LNG in 2015, demand has risen as 8-10% of the gas used in LNG production is consumed during the liquefaction process and in transporting gas over long distances to export locations. Currently, the LNG industry accounts for 80% of the gas produced in Australia.
Surge in Gas Production to Meet LNG Export Demands
Gas production in eastern Australia has more than tripled since LNG exports began, rising from an average of 1,930 terajoules per day (TJ/d) in January 2015 to 5,490 TJ/d in June 2024. This increase in production has largely been directed towards the three LNG export plants in Queensland, as domestic gas demand continues to decline.
Future Outlook for Gas Demand
Looking ahead, further declines in gas demand are expected in the manufacturing, electricity, and residential sectors. These reductions are driven by high prices, more competitive alternatives, and government policies aimed at reducing reliance on gas. In Victoria, the state government has introduced a gas substitution roadmap in response to the long-term decline in gas production from the Gippsland Basin, which has been the state’s main gas supplier for over 50 years.
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