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Risks to gas consumers of declining demand

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Energy Consumers Australia

The use of a shared network to deliver gas creates a particular set of issues associated with the transition to zero emission alternatives. As some customers switch to electric alternatives, for example, this will affect the cost of delivering gas to the remaining customers.

This could in turn, prompt even more customers to switch, creating a selfreinforcing effect. If a critical mass of customers leaves the network in this way, then the option of switching to renewable gas supply that utilises the existing gas network may be foreclosed. Eventually, the network will be progressively decommissioned, and the remaining customers will have to make other arrangements whether they want to or not.

By definition, these will be the customers least well placed to switch. This could be because they are vulnerable and low income consumers, renters or multi-unit dwellers with shared gas facilities. For business customers it could be because they depend on gas for key processes that are not easily electrified.

We engaged¬†Boardroom Energy¬†to better understand the ‘Risks to gas consumers of declining gas demand’

Key points:

  • Over 5 million households and thousands of businesses are connected to the gas network in Australia.
  • As gas networks are a shared asset, some customers leaving the network can impact remaining customers.
  • Decarbonisation is likely to drive customers to use less gas and eventually leave the network (usually by switching to electric alternatives). Government policies may accelerate this process but are not the only driver.
  • While gas networks are trying to avoid this outcome by seeking to switch to renewable gases such as clean hydrogen and biogas, their success at scale is not guaranteed.
  • As some customers leave the network, remaining customers will face progressively higher costs, and may eventually be at risk of having their gas supply withdrawn.
  • Switching could be a money saver for many households, but this depends on many factors, including whether they have to pay an abolishment fee (average c. $900) and/or need to upgrade their electrical supply and related appliances.
  • While many customers will be able to manage a switch away from gas at their own expense, others face barriers to doing so. These include renters, low income households, CALD customers, apartment dwellers and some businesses for whom alternative technologies are not yet viable.
  • These groups of customers are at the greatest risk of spiralling gas costs and the risk of supply being withdrawn before they have been able to arrange alternative appliances/energy sources.
  • While these risks are longer-term in nature, policymakers should begin thinking about how to address them now.

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