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Fossil Fuels & Generation
Shireen Malik
Shireen Malik
·Posted in Fossil Fuels & Generation
Wed, Jul 9

Victoria’s Gas Market: The Tug-of-War No One Is Winning

Victoria’s gas market finds itself stuck in a familiar loop: shortfall warnings, political indecision, and finger-pointing between producers and policymakers. The latest ACCC gas inquiry report (July 2025) may sound urgent, but for those tracking the sector closely, it’s déjà vu. The reality? This cycle has played out repeatedly since 2017, when the ACCC began its ongoing review of the east coast gas market (ACCC, 2025).

Victoria is also the most gas-dependent state in Australia, with more than two million households connected to the gas network and gas remaining a key fuel for heating, hot water, and cooking. This high reliance adds complexity to the transition challenge.

The structural issues have been clear for years: southern supply is declining, demand remains sticky in key sectors, and market power remains concentrated. What’s missing isn’t insight, it’s action.

The ACCC’s Not-So-New Warning

In its 4 July 2025 media release, the ACCC forecasts a potential shortfall of up to 9 petajoules (PJ) for the July–September 2025 quarter, especially if LNG exporters send all uncontracted gas offshore (ACCC, 2025). While longer-term contract prices are softening, this quarter’s forecast highlights the vulnerability of southern states, including Victoria, which rely increasingly on interstate supply.

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Chair Gina Cass-Gottlieb noted:

“Southern states remain particularly vulnerable to supply risks… timely action is essential to mitigate shortfalls.”

But this isn’t a new alarm. Since 2017, the ACCC has flagged persistent mismatches in supply and demand, particularly in Victoria, yet much of the public response replays the same old scripts: calls to drill, promises of electrification, and half-measures from regulators (ACCC Gas Inquiry, 2017-30).

In that time, domestic manufacturers have continued to face high contract prices, despite spot market relief and policy frameworks like the Gas Code of Conduct attempting to enforce "reasonable pricing".

The Producer-Government Impasse

The root tension lies in the policy divide between producers pushing for new gas development and governments prioritising decarbonisation. Producers argue that unlocking new fields in the Gippsland and Otway Basins is essential. The government, under pressure to meet climate targets, has banned fracking and championed household electrification through the Gas Substitution Roadmap (Energy Victoria, 2023).

In July 2025, Santos publicly stated it may not proceed with further east coast investment under current policy conditions (The Guardian, 2025). Meanwhile, households and industry remain caught in the middle, exposed to supply insecurity and pricing volatility, despite transitioning to electric appliances or negotiating short-term gas contracts.

Policy Flip-Flops and Market Uncertainty

The Victorian government’s roadmap aimed to phase out household gas use by 2035, but recent policy softening, including a potential backtrack on appliance bans, has revealed the pressure from voters and businesses alike.

Yet despite this, Victoria has made meaningful progress in setting a direction for transition. The Energy Efficiency Council's research highlights that efficient electrification, replacing gas appliances with high-efficiency electric alternatives, is not only possible but also cost-effective and emissions-reducing in the long run (EEC, 2025).

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The government deserves recognition for not buckling under pressure from aggressive pro-gas lobbying campaigns, as noted in a recent editorial: “Don’t believe the hype. The Victorian government deserves credit for holding the line” (The Guardian, June 2025).

Public messaging has been inconsistent. While pushing for electrification, the government has been slow to invest in grid upgrades, and gas remains essential for winter heating and peaking generation. Critics argue that a more technology-neutral, flexible energy plan would deliver better outcomes.

In parallel, industry stakeholders express frustration over regulatory uncertainty, claiming it deters capital investment in both gas and non-gas solutions like hydrogen or biogas.

Domestic Examples of What Works

Western Australia’s Reservation Policy

Western Australia mandates that 15% of gas exports be reserved for domestic use. This policy has kept WA’s domestic gas prices among the lowest in the country, a stark contrast to Victoria’s east coast market, where LNG exports compete directly with local consumers. (WA Government, 2024).

While critics argue WA's situation isn’t perfectly transferable, the principle holds: strategic intervention can protect domestic affordability without crippling the export sector.

AG&P LNG’s Floating Solution

In response to projected shortfalls, AG&P LNG plans to fast-track gas imports into South Australia and Victoria through floating storage and regasification units (FSRUs). This strategy offers a flexible and rapid solution to supply constraints without the need for extensive infrastructure development (The Australian, 2025).

Global Lessons

Canada: LNG for Long-Term Stability

Canada is scaling up its LNG export infrastructure, but is also prioritising domestic affordability and Indigenous partnerships. Projects like LNG Canada showcase how environmental, social, and economic objectives can be aligned, with proper planning and stakeholder engagement (Canada Government, 2025).

Mexico: Diversification as Insurance

Mexico’s investment in refining and domestic energy projects (e.g., the Olmeca Refinery) illustrates a different approach: diversifying energy sources to reduce import dependency. While Mexico is focused on oil, the principle applies to gas, self-sufficiency cushions a nation from global market turbulence (Hydrocarbon Processing, 2024).

Solutions: No Silver Bullet, But Plenty of Tools

To move forward, Victoria needs to embrace a multi-track strategy that balances supply, demand, and long-term transition:

  1. Domestic Reservation Mechanism (East Coast) A modest reservation, like WA’s 15%, could help stabilise prices and secure supply. The challenge lies in aligning state and federal frameworks.

  2. Incentives for Demand-Side Flexibility Rather than only focusing on new supply, incentivising electrification, energy efficiency, and demand shifting can reduce peak load pressure, particularly in winter.

  3. FSRU Deployment and Import Readiness Fast-track LNG import terminals to provide redundancy, but treat them as transitional tools, not long-term fixes.

  4. Transparent and Predictable Regulation Ensure that both gas and non-gas investors have clarity and confidence. Frequent policy backflips create cost and delay.

  5. Invest in Low-Carbon Gases Support biomethane, hydrogen-ready infrastructure, and R&D partnerships that provide viable alternatives for hard-to-electrify sectors.

Conclusion: Same Warnings, New Action Needed

The ACCC’s 2025 report reiterates what’s been said every year since 2017, Victoria is vulnerable to gas shortfalls. What’s changed is the urgency, the shrinking timeline, and the stakeholder fatigue from inaction.

If governments want to truly lead the transition, they must stop oscillating between reaction and rhetoric. If producers want social licence, they must embrace fair pricing and clean supply practices. If consumers are to bear rising costs, they deserve clear, consistent, and coherent transition pathways.

This isn’t about gas versus no gas. It’s about navigating the exit from legacy fuels with foresight, not panic.

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