Gas consumers in Australia may face increased costs under proposed regulatory changes aimed at addressing declining demand for gas and the financial challenges this poses to pipeline operators. The Australian Energy Market Commission (AEMC) released a draft determination on Thursday outlining reforms designed to prevent a "death spiral" in the gas network, where rising prices prompt more customers to leave, further driving up costs for those who remain.
The proposed changes would allow gas network operators and regulators to accelerate the recovery of investments made in pipeline infrastructure. Currently, the capital costs of pipelines are recovered evenly over their economic life, but with demand falling, the AEMC suggests that recovering a larger share of these costs earlier would better protect the financial health of networks. This shift could result in higher bills for households and businesses continuing to use gas.
To balance this, the AEMC also proposes granting regulators the authority to reduce the value of underused network assets. This mechanism would aim to prevent customers from bearing the full cost of infrastructure that becomes redundant due to lower usage, especially if gas prices would otherwise exceed those of alternative energy sources.
The reforms introduce a longer-term planning horizon, extending the existing five-year regulatory framework to incorporate a 20-year outlook. This would require network operators and regulators to account for expected demand declines when approving costs and investments. Additionally, the draft rules propose stricter scrutiny of new spending. Operators would need to evaluate all viable options, include quantitative cost-benefit analyses when feasible, and justify capital expenditures based on forecasted future demand rather than current consumption.
These changes stem from four rule-change requests submitted by Energy Consumers Australia and the Justice and Equity Centre, groups seeking stronger consumer protections relating to accelerated asset depreciation and stranded gas infrastructure.
The AEMC’s proposals come amid forecasts from the Australian Energy Market Operator (AEMO) predicting a 75 percent reduction in east coast residential and small commercial gas demand by 2045—from 130 petajoules in 2026 to 35 petajoules two decades later. Despite the decline, gas is expected to remain a significant part of Australia’s energy mix, with anticipated supply shortfalls prompting policy discussions, including a Labor proposal for a reservation scheme to ensure modest oversupply.
The commission has cautioned that without amendments to the regulatory framework, consumers could face rising and volatile gas prices as demand falls, while the financial viability of gas networks may be threatened. The AEMC is seeking submissions on the draft determination by October 8, with a final decision and rule changes expected in December.