What is the future of gas in Australia's energy market?

Gas power in Australia is decreasing.

The Institute for Energy Economics and Financial Analysis (IEEFA) has said that dependence on gas power generation has been in a steady decline in Australia, thus investing in this sector may lead to risks.

“Gas power generation in Australia has been in steady decline, and is at record low levels. AEMO’s [Australian Energy Market Operator] forecasts do not see gas generation increase above these levels until at least the mid-2030s, and do not see gas generation ever return to pre-pandemic levels,” said Jay Gordon, Energy Finance Analyst – Australian Electricity at IEEFA.

He also noted that the amount of gas generation in AEMO’s forecasts is small compared to recent historic levels, and even smaller compared to the increase in renewable generation and storage expected.

IEEFA expects the use of gas power generation to further fall and become increasingly weather-dependent. A key driver of utilisation of gas generation is the frequency and severity of periods with low wind and solar output, the think tank said.

IEEFA also warned about the risk of investing too much in new gas supplies if demand drops faster than expected. In the south, there might not be enough gas on cold days, but using liquid fuel or biofuels could be cheaper than building more pipelines.

“Investors will need to look beyond the narrative of gas in AEMO’s ISP [Integrated System Plan], and be mindful that AEMO’s forecasts in fact point to a declining role for gas generation,” Gordon said.

“Investment opportunities in gas power generation may not be as significant as some industry groups have suggested, and carry significant new risks for investors to manage,” he added.