Australia's East Coast gas market faces complex challenges with no easy solutions

– Australia’s East Coast gas market is on a path toward a structural shortfall, according to Wood Mackenzie. The article, ‘Dare to be bold: Australia’s East Coast gas market’, highlights intensifying supply shortfalls and warns that without decisive action, Australia faces a future of chronic gas shortages, particularly during winter months. 

According to Wood Mackenzie, gas demand on the East Coast remains resilient, but new supply is not keeping pace. A combination of declining exploration activity, delayed investments, and an increasingly complex policy environment has undermined market confidence. 

“Gas remains a critical part of Australia’s energy mix, particularly as the country speeds up its transition to renewables and retires coal,” said Daniel Toleman, research director of global LNG at Wood Mackenzie. “However, recent policy interventions have disrupted market dynamics, creating a cycle of underinvestment that threatens the long-term affordability and reliability of gas supply.” 

Australia’s East Coast gas demand by sector 

Year-round shortages likely by early next decade 

Wood Mackenzie’s analysis shows that the East Coast will begin to experience tight supply conditions during winter from now on, with year-round shortages becoming increasingly likely early next decade. Despite higher prices, few new gas supply, or exploration projects are progressing. 

Policy trade-offs and unintended consequences 

Wood Mackenzie's latest analysis explores various policy options available to the government, each carrying its own set of risks and trade-offs.  

• Price caps, while offering short-term consumer relief, risk undermining project economics and deterring future supply. “Recent exemptions have effectively set a floor price, as market participants anchor prices to the cap, making the market less responsive to supply-demand signals,” said Toleman. 

• Export diversion could boost domestic supply but risks damaging Australia’s reputation as a reliable LNG supplier. Queensland LNG projects were approved without domestic obligations and rely on long-term contracts. Diverting exports would also require major infrastructure upgrades, as southern markets face the brunt of the shortfall. 

• Importing LNG through floating storage and regasification units (FSRUs) is technically feasible but commercially challenging. Global demand for FSRUs has surged since the Russia-Ukraine conflict, making units scarce and costly. The government may need to underwrite the commercial risk of such infrastructure. 

Moreover, importing LNG would expose Australia to volatile global prices. Domestic gas prices would align with international LNG costs plus regasification and transport charges—potentially far exceeding current netback pricing. 

Government policy impacting Australia’s East Coast gas market 

Investment in new supply is the clearest path forward 

Wood Mackenzie argues that unlocking new domestic gas supply is the most effective way to reduce emissions and lower energy prices in Australia. However, this would require a shift in government policy and a willingness to make politically difficult decisions.