A plan for Australia to import LNG has renewed debate about whether households are being ripped off by the gas industry.

A $1 billion import terminal is wrapping up construction at Port Kembla in New South Wales. It is expected to ease projected gas shortages in coming years through imports.

Backers of the terminal argue that it is needed to curb soaring gas prices.

However, others say the situation is bizarre because Australia has long been one of the world’s biggest LNG exporters.

What it means for prices is still unclear. Where the terminal will get its LNG is up in the air ahead of its planned start date in 2026 (including whether local sellers will play a role).

Big country, broken gas market

It seems absurd for Australia to import gas because of local shortages.

The Australian gas industry shipped 81 million tonnes of LNG overseas in 2022-23.

It is symptomatic of a market that former Australian Competition and Consumer Commission (ACCC) boss Rod Sims has called “broken”.

Australians are paying more for energy, analysts say, as the industry rakes in windfall profits.

Energy analyst Tom Quinn said the import terminal is “madness”, and exposes government failures in forcing companies to reserve enough gas to keep heaters going during winter.

“We’ve seen an absolute explosion in LNG exports, largely unrestrained,” Quinn said.

“Their greed is putting our domestic manufacturers at risk, they’re sending it all offshore.”

Australia Institute research director Rod Campbell thinks the terminal is the latest evidence that the market has been set up to “scam” Australians, and called for an acceleration in electrification.

“In the past 10-15 years Australian gas production has tripled,” he said.

“Yet we’re talking about gas shortages and needing to import gas.”

But backers of the terminal point to an underlying logic in the plan to alleviate the pressure on gas supplies over the next decade as Australia struggles with weaning itself off fossil fuels.

Grattan Institute Energy Program director Tony Wood said the terminal isn’t necessarily entirely about importing from overseas, and could be used to ship in gas from northern states.

Reservation can’t solve the problem of needing to transport gas down the east coast, he said, with southern states still demanding gas and northern states like Queensland becoming vital producers.

“I don’t think it’s absurd at all, this is a big country,” Wood said.

“We’ve got plenty of gas, the problem is it’s not in the right place.”

Squadron Energy, the company behind the Kembla terminal, confirmed to TND that it was open to taking LNG shipments from northern states and that negotiations with the market are ongoing.

However, the company was unable to comment on talks with specific local or overseas sellers.

Australia does have an existing pipeline that ships gas from Queensland to the southern states, but it was dangerously close to being maxed out during the cold snap in May and June this year.

Part of the problem is that gas production in Victoria and South Australia is starting to decline, making the market more vulnerable to extreme weather events and unplanned outages.

Source: AEMO.

The Australian Energy Market Operator (AEMO) was forced to consider intervening as sub-zero temperatures across eastern states this winter triggered a risk there wouldn’t be enough gas.

Outlook for gas prices unclear

Shortages like that, which the AEMO fears could worsen in coming years, risk driving gas bills even higher for households trying to heat homes, particularly if there’s another cold winter.

But how prices actually develop and how they could be affected by the import terminal is unclear.

It depends on factors like the weather, how quickly gas demand falls as the economy electrifies and how much re-gassification done at Port Kembla is drawn from local versus overseas sellers.

Quinn said that to the extent the terminal does purchase gas from overseas, it will likely be more expensive than other forms of gas, such as the energy from existing domestic gas pipelines.

“If we’re importing LNG that will then be the most expensive form of gas to be producing electricity with,” he said.

‘Hell of a challenge’: Electrification race

Supply is just one part of the story though; Quinn said that the “bonkers” state of the gas market makes efforts to reduce demand even more important for budgets and the environment.

Campbell said Australia urgently needs to electrify to free consumers from gas companies that had always planned to use LNG exports as a way to push up domestic gas prices and profits.

“If we were running out of water the first thing Australian governments would do is tell everyone to use less water,” he said.

“Why aren’t we doing that with gas? The answer is we’re not actually running out, the whole scam is just about trying to sell as much of it as possible.”

Source: Grattan Institute.

Much will depend on how quickly Australian demand falls in coming years, with AEMO forecasts predicting southern states will become increasingly less reliant on gas over the next decade.

But Wood said the energy transition will be tricky. Millions of households still need to be electrified as Victoria begins phasing out gas connections and the ACT sets a ban date in 2040.

“Most consumers would be better off if they had electricity anyway,” Wood said.

“But you would need to get 200 consumers off gas every day for the next 20 years for Victoria to meet its renewable energy targets – that is a hell of a challenge.”

Grattan research has previously made the case for more government subsidies to help households move away from gas, underscoring the urgency of moving to electric heating.

Quinn said households do need more help moving off gas – particularly with the upfront costs of buying new systems – but that reducing the role for gas in the broader grid is well progressed.

He pointed to grid data showing that while gas generation is higher than last year in 2024, it is lower than 2022, with the nation having already moved past peak demand several years ago.