The US-Israel strikes on Iran risk a repeat of the 2022 energy shock that forced power bills up by more than 40%, sent Australian businesses to the wall and forced governments to spend billions on power bill subsidies.
The stark warning from experts follow news that Qatar, the third-largest liquefied natural gas exporter, had stopped production after Iranian drones on Monday attacked its sprawling Ras Laffan complex.
The decision sent global wholesale gas prices soaring by 50% in Europe and approaching 40% in Asia, reminiscent of the global energy chaos unleashed by Russia’s invasion of Ukraine four years ago.
The US-Israeli missile strikes have already choked off shipping through the strait of Hormuz, through which around a fifth of the world’s seaborne oil and gas passes.
Kevin Morrison, an LNG and gas analyst at the Institute for Energy, Economics and Financial Analysis, said “gas [on global markets] has had a much more dramatic increase than the price of oil”.
“What the market is saying is they are fearing that the impact is going to be much greater for gas than for oil,” Morrison said.
Australian wholesale gas prices have tripled over the past decade, coinciding with the start of major LNG export terminals in Queensland which tied domestic prices to the more expensive and volatile international market.
Following Russia’s invasion of Ukraine, national household gas and electricity prices jumped by 27% and 43%, respectively, in the year to March 2023, while gas prices for manufacturers surged 46%.
So far, there is no evidence that the Middle Eastern conflict has begun to feed through into the price of Australian LNG and domestic gas prices. Morrison, however, said there were similarities between what was happening now and four years ago.
“We have a big global gas supplier being knocked out, so the threat is there. We were heading into a period where gas prices were supposed to be coming down, but the characteristics are now there for a prolonged spike in prices,” he said.
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The government has announced a domestic gas reservation scheme that will force LNG exporters to set aside up to a quarter of their gas for domestic use, but that is not due to begin until the start of next year.
For now, however, “we a very, very exposed to international prices,” Morrison said.
“We could start seeing gas prices increase domestically, and that filters through to electricity - there’s a strong correlation between them. Combine that with rising petrol and diesel prices and we have a general increase in energy prices.”
A spokesperson for Madeleine King, the resources minister, said steps taken by the Albanese government, such as the $12/GJ reasonable pricing mechanism under the gas market code, “has insulated the domestic market from extreme price spikes, such as those that occurred as a result of Russia’s illegal invasion of Ukraine”.
The spokesperson noted that the domestic gas market was predicted to be “well supplied” in 2026, but that “the government is continuing to monitor the situation”.
“The recently completed gas market review will see the Albanese government secure more affordable gas for Australians, better protect businesses from international price spikes, and ensure industry is on a stronger footing when it comes to negotiating gas contracts through the introduction of a domestic gas reservation scheme.”
But Tony Wood, a senior fellow at the Grattan Institute’s energy and climate change program, said the steps taken by the government over recent years had not completely broken the link between the global and domestic gas prices.
“What’s going on now will put a lot of pressure on the government to be much more heavy-handed, not only to make sure the domestic market gets supplied, but that the price does not reflect crazy international prices,” Wood said.
“Ukraine when it happened many thought it would be a short, sharp war, but here we are four and a half years later.
“Just when everyone was starting to think we might see LNG prices moving down, maybe they won’t.”
