Gas shortage warnings pushed out three years as households and businesses go electric

Households quitting gas to go electric, or minimising use of the costly fossil fuel to save money, have helped push out forecast gas shortfalls by three years, according to the latest market update from the Australian Energy Market Operator (AEMO).

The 2025 Gas Statement of Opportunities (GSOO) – AEMO’s annual summary of gas supply and demand, published Thursday – once again warns that gas production is falling faster than demand in Australia’s southern states, and again calls for investment in new supply.

But the market operator’s annual warnings of gas shortfalls and supply gaps in the southern states this year says these might arise from 2028, with annual supply gaps emerging from 2029 – compared last year’s forecast of peak-day shortfalls as early as 2025 and supply gaps from 2026.

This extra breathing room follows a year where non-industrial gas consumption in the National Electricity Market’s (NEM) central and eastern states fell by 4.2 per cent compared to 2023, while in Victoria – where the state government is phasing out gas in homes – consumption fell 4.5%, year-on-year.

“In recent years, gas consumption has declined across most sectors, influenced by higher retail prices, mild winters, and increased electrification,” the market operator said in a statement on Thursday.

“This with changes in electricity generation outlooks has improved short-term gas availability.”

This is a welcome statement coming from AEMO, which is has copped criticism in the past for its tendency to overestimate future gas demand – and underestimate the impact of electrification and other market factors.

“AEMO’s latest analysis clearly shows that government initiatives to accelerate household electrification can reduce gas consumption, and with it, the risks of supply gaps,” IEEFA’s lead gas analyst, Joshua Runciman, said on Thursday.

“Further government support for residential and commercial gas users would drive down demand even further, addressing supply concerns and freeing up gas for Australian industry, thereby ensuring we keep Australian manufacturing jobs in Australia.”

Kevin Morrison, also a gas analyst at IEEFA, welcomes AEMO’s acceptance that year-on-year declines in residential and commercial gas demand amounts to “a structural change for these two sectors with no bounce back.”

But while the market operator sees demand in residential and commercial extending its fall by a further 70% over the next 19 years, Morrison says AEMO is still ignoring some key market inputs to its GSOO reports, including the potential for industrial decarbonisation.

“Industrial gas demand consumption has fallen 10% in the past two years and further falls are likely to emerge in the sector as industrial heat pumps are adopted for generating heating for certain manufacturing markets like food.

“However, AEMO sees this market segment remaining relatively steady over the next 15 years, despite gas demand in the manufacturing sector at a 25-year low.”

Morrison is also concerned that AEMO’s forecasts – which predict gas power generation consumption will increase from the early 2030s, with
significant growth in peak day consumption – fail to account for the impact big batteries could have on gas peaking plants.

“AEMO are predicting a rise in gas use after a number of coal fired power stations close in 2027 and 2028, yet we have seen a very large investment in grid-scale batteries with around 10GW expected to be in operation by the end of 2026 and that will provide competition to gas peaking plants that doesn’t exist so much today,” he writes.

“There are only three references to batteries in GSOO 2025 and 42 references to hydrogen. Yet there are real investments in batteries, as well as projects in operation and under construction, whereas the same cannot be said for green hydrogen.”

IEEFA also notes that this year’s GSOO report has served as a reminder that the majority of east coast gas is exported to international markets at the expense of domestic gas users – a dynamic that is leading to higher prices and, ironically for the industry, helping to drive electrification.

“AEMO has perennially warned of gas shortages in eastern Australia, which sends 80% of its gas output overseas and has caused prices to rise,” Morrison says.

“This has prompted users to either switch to cheaper low emissions alternatives or it has forced the closure of manufacturing plants. This combination has caused overall gas consumption to fall and as a result we are now seeing AEMO deferring the timing of these expected shortages, now they are not going to occur until 2028, three years later than what was forecast in last years’ GSOO as less gas is used domestically, but we are still seeing more exported.”

Early on Thursday morning, federal Labor announced it was moving to address this quirk of the market, with a deal that will give commercial and industrial consumers first preference for the new supply of up to 40PJ of “affordable gas.”

The gas supply deal with APLNG has been secured through the Albanese government’s mandatory Gas Code of Conduct, which came into effect in 2023.

It means APLNG will supply up to 10PJ of gas per year for four years, offered at $12/GJ, indexed to CPI. The deal agrees to extend the terms of APLNG’s existing domestic supply deal under the Code, which was originally set to expire at the end of this year.

“Gas has an important role to play in our energy system as we transition towards 82 per cent renewables,” federal energy minister Chris Bowen said in a joint statement with federal resources minister Madeleine King.

“Unlike coal or nuclear gas power generators can be turned on and off in a couple of minutes. And when it’s off, it’s zero emissions,” Bowen said.