The Australian Energy Market Operator has published its annual Gas Statement of Opportunities report. The report forecasts difficult times ahead for Australia’s east coast gas market, with a risk of shortfalls on peak demand days in 2025 and seasonal supply gaps from 2026. So, is Australia running out of gas?

At the household level, people are concerned about keeping the heater going and the cooktop on. In the bigger picture, governments and industry are grappling with a complex change from fossil fuels to renewable energy.

In this Grattan Podcast, host Kat Clay talks to our energy expert Alison Reeve about whether Australia can expect gas shortfalls in the future, and where the responsibility lies for avoiding – or at least managing – these potential outages.

Read the reports mentioned in the podcast


Kat Clay: The Australian Energy Market Operator has dropped their annual gas statement of opportunities report. And while it sounds innocuous enough, it forecasts difficult times ahead for Australia’s East coast gas market. The report predicts a risk of shortfalls on peak demand days in 2025 and seasonal supply gaps from 2026.

Which begs the question, is Australia running out of gas? On a household level, consumers are concerned about keeping the heat on and cooktops going. The idea of running out of gas in winter worries those of us who still have gas connections in their homes. In the bigger picture, governments and industry are grappling with a complex change from fossil fuels to renewable energy sources.

The prediction of gas shortfalls is but one of many teething issues in that transition. I’m Kat Clay and here to navigate the bumpy road ahead is one of Grattan’s energy experts, Alison Reeve. Alison, it’s so great to have you back on the podcast. I’ve really missed our chats on energy here.

Alison Reeve: Thanks Kat. It’s really nice to be back actually. It feels like ages since I’ve done a podcast.

Kat Clay: Well, we’re going to talk about the gas situation at the moment. I mean, AEMO dropped this report. it’s been in the news. How did we get to this point where Australia might not have enough gas?

Alison Reeve: Yeah, this report actually comes out every year and the purpose of it is to give people forward notice of whether there might be a shortfall of gas so that anyone who wants to go and invest in either building a new gas pipeline or building a new gas supply gets the signal to do Now the thing is that this report has been coming out every year and every year it has been pointing to this fact that we are likely to start seeing shortfalls and supply gaps coming ahead.

The reason that this has come up, it’s kind of a mismatch about where the gas users are and where the gas supply is. So most of the gas use on the East coast is down on the Southern end of the East coast, particularly Victoria, but also New South Wales. And these days, most of the gas production is in the North, it’s in Queensland. And so the gas production we have in the South has been starting to run out over time, and we’re not getting the gas coming down from Queensland to fill the demand that we’ve got in the Southern states.

Kat Clay: Alison, can you break down AEMO’s forecast for us a little bit more? What is the difference here between shortfalls and seasonal supply gaps?

Alison Reeve: A shortfall happens on what’s called a peak demand day. So peak demand days for gas tend to be cold days in winter when we’ve all got our heating on. We all want to cook a nice hot meal for dinner and have a hot shower. And also the gas fired power stations are running pretty fast because the renewable generation is down.

So when you have a shortfall, it’s on one of those days and it’s where you don’t have quite enough gas to get you through the day or maybe even just through part of the day. A supply gap is more when there’s going to be a season where you’re going to consistently not have enough gas during that season, usually during winter to meet your predicted demand.

shortfalls on peak demand days are worrying, but kind of manageable. Seasonal supply gaps are actually a little bit more of a problem. And those are likely to be coming on from 2026 if we don’t see more investment. and so that would mean that during winter we would have potentially a permanent shortage of gas, which means there’d be too many people wanting to use it for the supply that we’ve got.

Kat Clay: You mentioned investment here. I mean, we’re not thinking investment in more gas, are we?

Alison Reeve: It’s a really hard question actually to, it’s a hard thing for governments and for business to grapple with as well. So in the long run, we don’t want to be investing too much more in gas because eventually we have to stop using gas. The thing is that to get through this period where there isn’t sufficient gas and where we can’t affect the demand for gas fast enough, we may need more investment in some part of the gas industry in order to ride us through that. The report identifies lots of different options. but there’s not really a silver bullet option here. there’s options of maybe some extra supply in a couple of places. there’s options of extra pipelines.

There’s options, of even potentially Importing gas into the southern states, either from Queensland or from Western Australia via LNG. We can only go so fast in reducing the demand for gas by moving people away from using gas. And the thing is that the pace that we’re able to manage probably isn’t sufficient to get us over this gap that we’re seeing coming up.

Kat Clay: One of the big questions looming in the media at the moment, and because a lot of us still use gas in our homes, should we be concerned as households about our gas supply? in a couple of, winters, will we be facing, the gas turning off and our heating turning off?

Alison Reeve: I think that’s unlikely, because what tends to happen, when you do have shortfalls or supply gaps, is that the first thing that the market operator does is goes to the industrial gas users and asks them to curtail their demand. So that might mean, a big manufacturing facility turning its furnaces down for a few hours during the day so that they’re not taking as much gas and that gas is available for other things like hospitals or schools or households or swimming pools, where it’s more difficult to go without gas during winter. Now we don’t want to be doing that long term, but that is probably where we will see the impact if we don’t get enough gas together to ride through these periods of shortages.

Kat Clay: So AEMO have suggested several solutions in this report, including improving gas transportation and capacity.

What do you make of these?

Alison Reeve: I think the thing is that none of them is enough by themselves. And there isn’t really anyone whose job it is to bring them all together and make sure that they all happen. Because we all, that several of them happen, because we need to do more than one of those things in order to avoid shortages.

And this is I think kind of the larger problem about the way that this, that the gas statement of opportunities works, is that it isn’t really anyone’s job to address these shortages. The way that it’s meant to work is that the market operator calls attention to the fact that there may be a shortage and people see that as an opportunity for investment.

But year after year, companies are choosing not to make that investment. And that’s because even though the market operator can point to these potential shortages, there’s still considerable uncertainty around the future demand for gas and when that’s going to be there. And that really affects, whether or not people want to invest because you’re not sure if you’re investing, for a 10 year period, for a five year period or for a 30 year period.

And all of those, really affect how you finance a project.

Kat Clay: Yeah. And it’s, not a simple thing to just invest for a short term project. There’s a high level of cost involved and obviously the cost of gas is going to increase through the years as we transition to renewables. I can understand why businesses are kind of watching the cards play out closely.

I mean, is there a place for government to do something here?

Alison Reeve: Yeah. So the, federal government earlier this year announced a deal with Woodside and Exxon to secure, an additional, I’m sorry, I can’t remember exactly how many petajoules of gas, but they secured enough gas to remove the risk that we would have had a shortage in Victoria this winter in 2024. But that’s really just pushed the problem out to 2026.

We actually need a lot more new supply. We potentially do need new deals like that. We also need, I think, governments to start giving companies more certainty. around exactly what the role of gas is going to be over the next 25 years. governments use these sort of quite general statements along the lines of, oh gas will be an important part of the transition, but that’s not enough certainty to put your money on the table or not. Governments really need to start being a lot clearer about when they expect to see certain sectors winding down their gas use. Particularly that’s, I think, for households and they also need to put, I think, a few more boundaries around what the role of gas in the electricity system is going to be in the long term as well.

Because again, the forecasts show that there is a role there for gas and it’s quite small, but there’s still a considerable amount of uncertainty around how big that will be.

Kat Clay: The thing I wanted to ask about as well is the closure of coal fire power stations and things like that.

Is that playing a part here as well? Do they need to stay open for longer? is that part of the recommendations AEMO has here?

Alison Reeve: So the coal fired power stations, the rate at which they’re closing down, we’re not building sufficient new capacity in either gas or renewables to replace that at the moment. So the rate at which that new generation capacity is being built does need to speed up. So we may need to run the gas generators that we’ve already got a little more often, which would mean that we would need extra gas in order to do that so that, and we’d be doing that so that we don’t also get a reliability problem in the electricity supply. Longer term, we’re probably not going to use much more gas for electricity than what we do now, even though we will be using a lot more electricity overall, because many of the things that we use gas for at the moment, we will be starting to power through electricity instead. But most of that is likely to be taken up with new renewable generation. The problem with keeping the coal open for longer is a lot of the coal fired power stations are really old and even though you might want them to stay open, they just, they’re just a little bit clapped out.

They’re like that bommy old car that’s starting to cost you more to keep on the road than the actual thing is worth in scrap metal value. Even though people might want to keep the coal in for longer, the question of whether it’s actually possible, is another one that’s really just down to the physical conditions of those plants.

Kat Clay: One of the things that I was thinking about as you were talking about that is, is making that point, that you’ve been making in a lot of your reports and your research is that, uncertainty for gas also affects the industry, building renewables as well. and is that perhaps part of the reason that transition hasn’t happened as smoothly as it possibly could, because there is that uncertainty in all areas of this kind of, technology development, I suppose.

Alison Reeve: It’s not that the performance of the technology is up for question. It’s more that so when you’re investing in something new, whether that’s a wind turbine or whether that’s a gas power station, or whether it’s new gas extraction, you need to be able to go and borrow the money to do that.

And the person you’re borrowing the money from wants to know when they’re going to get paid back. And when there’s a lot of uncertainty about what your revenue is going to be going forward, because you’re uncertain about what the demand for your product is. You can’t give that person as much certainty as you like.

And so they charge you a higher interest rate and that affects the economics of your project. Where that risk starts to come through into investment is that because there is less certainty. around what we’re going to do and when in terms of the energy transition that flows through into making things higher cost or making people not want to invest at all.

They just hold on to their money or they invest it somewhere else in the economy.

Kat Clay: One of the things that’s suggested is reducing gas exports and redirecting them to the local market. What are the consequences of this, for, Australian budgets?

Alison Reeve: I mean, that is not as simple as it seems because most of the gas that we sell overseas has been pre purchased. It’s, there are long term contracts in place that say that Australian companies are going to supply gas, say to companies in Japan or Korea, for 15 years at certain volumes.

And it’s difficult to get out of those contracts and say, sorry, we’ve just decided to sell that gas into the Australian market.

So there is a provision for the resources minister to prevent gas companies from exporting any extra gas production they have above their contracted amounts and force them to offer that into the domestic market first. They haven’t pulled that trigger. because that is a big deal, right? Telling companies that they’re not allowed to sell their product or to people overseas or telling them who they have to sell it to is a big deal. And that’s not necessarily a place that you want to be.

That provision is there. That is kind of one of the other things about the point of doing the state, the gas statement of opportunities anyway, is to send a signal also to those exporters that, hey, there is demand domestically. Maybe you would like to sell some more gas into the domestic market.

Kat Clay: I mean I can see this perfect storm brewing, Alison, where nobody’s taking responsibility for this at the moment, but come 2026, 27, 28, when we’re actually facing these gas shortages, people are potentially dealing with shortages in their workplaces, industry, or even their homes.

That’s when the issue is probably going to come to a head, even though we’re. being warned of it now. Where do you think the responsibility lies here? I mean, who should be looking after this and making sure that, We’ve actually got the gas that we need to transition well.

Alison Reeve: It’s unusual for Grattan to argue for more government intervention into markets, right? I think we tend to come from a position that usually. Markets are a reasonable way to get work things out. The things where markets tend to fail is when you have deep uncertainty and lots of things happening very quickly.

And that is often a time when you do need governments to step in and give more direction or take more action. I think it does have to be someone’s responsibility to do something about this problem. The energy market operator can’t fix the problem. Like all they are allowed to do is to point to it and and raise it and air it in public and say, here is that here is the issue. It is actually the responsibility of governments and, of gas retailers, the people who are wanting to sell gas to us to sort this out and to find a way that we can get through these periods of shortage.

And that we can get ourselves on the right track to moving ourselves away from using gas in the longer term as well.

Kat Clay: I mean, given the ambitious targets for net zero by 2050, governments do have a responsibility here to manage this transition well. What would you recommend they start doing?

Alison Reeve: So one of the most useful things that governments can do is to set dates after which they do not expect gas to be used in particular sectors. And I think that’s particularly the case for households.

So the ACT has done this already. They have said there will be no gas in the ACT after 2045. And when you do that, That removes several variables from this very tricky problem about exactly how much supply do you need? how much infrastructure do you need? And so on, because you’re working towards a particular date, and you can start managing towards that date.

Victoria has started phasing out gas connections in new homes. but the really the next big step for them is to think about setting a deadline after which they don’t expect there to be gas in the residential sector anymore. so just taking some of that uncertainty out of it, I think helps everybody.

I think the other thing that comes into this too is thinking more about how to deal with The role of gas in the electricity sector. There just simply isn’t sufficient certainty there about what we think the long term role of gas is and unless you’ve got clarity around that, you don’t know, if you’re a gas producer where and when you should be investing, what kind of market you can expect to have. And it also creates a sort of a, flow through of uncertainty into how reliable we’re going to be able to keep the electricity market as well, because at the moment, everyone’s working assumption, I think is that we will have a very high renewables market with some storage and things like pumped hydro, and then we’ll rely on gas for when we really need it.

But that assumption is kind of, is assuming that gas will just be there. And if we aren’t seeing the investment into making sure that the gas is there when we need it, then that assumption isn’t going to hold either. And we’ve actually suddenly introduced a whole lot of uncertainty into the energy market too.

Kat Clay: And I mean, Alison, we do have a whole report on getting off gas. Don’t we?

Alison Reeve: We sure do.

And a podcast in our back catalog for people who were interested. So that was the report that we published at the beginning of last year about how to move households away from using gas and basically why that was actually a better financial decision for most households to make that change.

One of the things we did say is that you do have to move a lot of households. I think our estimate at that time for Victoria was you needed to switch around 200 homes a day from gas onto electricity, but 400 homes a day in Victoria will be replacing one of their gas appliances because it’s broken and at the end of its life.

part of this process of getting out of gas is really just comes down to the natural replacement of gas appliances and whether that’s an opportunity to switch over to using electricity. We can’t do that fast enough as far as anyone can see to get us through these potential forecast of shortages in 2026, but the more of it that we do, the less likely we are to have these periods that we need to worry about with gas shortages going forward.

Kat Clay: Thank you so much, Alison. If you’d like to read that report or the AEMO report, I’ll put links to those in the show notes for today. If you’d like to donate to Grattan, please visit We really appreciate your support and every dollar helps to continue our evidence based policy research.

As always, please do take care and thanks so much for listening

Kat Clay

Head of Digital Communications
Kat Clay is the Head of Digital Communications at Grattan Institute. She has more than a decade of experience in digital content and creative services across the non-profit and government sectors.

Alison Reeve

Energy and Climate Change Deputy Program Director
Alison Reeve is the Energy and Climate Change Deputy Program Director at Grattan Institute. She has two decades of experience in climate change, clean energy policy, and technology, in the private, public, academic, and not-for-profit sectors.