Gas has long been touted by industry as the low-emissions alternative to coal and as a green solution to the global energy mix, but the Grattan Institute this week warned of some unintended consequences.

The Institute’s latest report Gas at the crossroads: Australia’s hard choice said: “Huge changes in Australia’s gas market will push up the average household bill in Melbourne by more than $300 a year, and in Sydney and Adelaide by more than $100 a year.

“Electricity and gas prices for Australian households have already increased in real terms by 61% and 36% respectively over the past five years.

“Gas price increases are also likely to price gas-fired power out of the electricity market, except to meet short-term peaks in demand.

“This will lead to more coal being used for electricity generation, with a damaging effect on the climate and Australia’s hopes of meeting its 2020 emissions reduction target.

“The emergence of an Australian gas export industry projected to be worth $60 billion a year by 2018 was driving the latest price increases, since domestic consumers will have to pay gas suppliers the same high price that suppliers can fetch on the global market.

However, despite its claims about pushing gas-fired electricity out of the mix, it also said most households were unlikely to switch from gas to electricity appliances as they still preferred gas, or they weren’t able to justify the immediate cost of switching or they are just confused by the competing choices.

While urging governments to remove the remaining barriers to a well-functioning market to ensure the nation gets proper value from its gas exports, Grattan’s energy program director Tony Wood said they should resist pressure to protect Australian industry from the price rises.

“Reserving or subsidising gas for domestic use will add more costs than benefits and do nothing to increase supply. And in the long run, protection harms everyone,” Wood said.

DomGas Alliance executive director Matt Brown said the Grattan’s latest report could be under-stating the “massive impact” higher prices would have on east coast homes and industry.

He said Grattan’s claim that domestic prices would only increase to an export parity price was unsubstantiated; and charged that the report ignored the “real-life experience” in Western Australia.

Brown noted that gas producers told a 2001 WA parliamentary inquiry that “the price for a domgas customer may be greater than or less than any LNG price” – in other words, producers were more willing to charge above LNG netback pricing.

The same inquiry reported that LNG netback pricing was already being exceeded.

“The latest Grattan Institute report is naïve to believe that the east coast market will behave any differently and that means even more pain for households and industry,” Brown said.

He also rejected the report’s claim that domestic gas reservation policies “reduce the development of Australian gas exports and reduce the incentive to develop gas supplies” – which, again, WA experience proves wrong, Brown said.

He said WA achieved another record year for exploration investment and LNG exports last year, with the Devils Creek, Macedon and Pluto projects all being delivered since the state’s reservation policy was introduced – and Chevron projects Gorgon and Wheatstone will soon follow suit.

“Even the Grattan Institute itself has acknowledged that after eight years of domestic gas reservation, WA had $116 billion of new projects under construction,” Brown said.

“It is also misleading for the institute to reference a call by WA’s Economic regulation Authority to rescind the policy without noting that the ERA did no economic modelling to support its theory.”

Naturally, Australian Petroleum Production and Exploration Association CEO David Byers backed the Grattan report, noting that the report “firmly rejects the simplistic notion that domestic gas reservation is a viable solution to rising prices”

“Leadership is urgently required” to allow for the responsible exploration and production of natural gas in New South Wales and Victoria to secure supply and put downward pressure on rising prices,” Byers said.

“Gas is vital to millions of households, but also to the commercial, industrial and agricultural sectors that rely on gas for the manufacture of products such as chemicals, plastics, pharmaceuticals, fertilisers, paints, pesticides and cosmetics, and the production and processing of food and fibre.

“Bi-partisan support for gas production in Queensland has resulted in tens of thousands of jobs, regional investment and a $65 billion industry.”