Homes and businesses in the southern states could suffer gas shortages this winter and ongoing shortfalls within a few years.
The Australian Energy Market Operator has delivered the stark assessment in a 2023 update calling for urgent investment to ensure gas supply in the medium-term.
Pressure is building for the upcoming federal budget to address power bill relief and support the scale of electrification needed to meet national climate and renewable energy targets.
The data released by the AEMO on Thursday shows consumers have been slower than expected in shifting away from gas.
It recommends strong incentives and industry investment to accelerate the transition but the retention of gas as an important part of the overall energy mix.
"We have to have gas, we have to have coal. If we don't, the lights go out," opposition leader Peter Dutton said.
Industry sources say millions of homes and businesses in Victoria and NSW are already paying extra whenever gas is imported from Queensland.
However independent Rewiring Australia founder Saul Griffith said increasing the supply of expensive gas was not the solution.
Australia must reduce demand by helping households and businesses use cheap electricity from their own rooftops, Dr Griffith said.
Gas production was forecast to meet customer demand in central and eastern Australia but supply risks remained in the south, particularly in Victoria - where output was expected to almost halve by 2027.
The AEMO said the risk of supply gaps increased if excess production was exported.
Without additional commitments to expand domestic supply or either hydrogen or biomethane coming online as an alternative, gas contracted for export by Queensland producers might need to be used to fulfil domestic requirements from 2026, its report warned.
Australia's energy ministers have already extended the market operator's powers to tackle immediate east coast supply shortfalls, while an agreement between the government and gas producers is also tipped to help shore up domestic requirements.
Taking effect for winter 2023, the new powers are designed to secure the gas and electricity markets and protect domestic gas consumers.
AEMO chief executive Daniel Westerman said more production was needed to prevent shortfalls during winter peaks and beyond.
Gas plants are expected to support renewable generation with at least five coal plants likely to close in the next decade, accounting for 13 per cent of the electricity market's capacity.
Queensland's trouble-plagued Callide C coal-fired power plant remains offline and NSW's Liddell Power Station will be retired next month.
Environment Minister Tanya Plibersek said she was not under pressure to approve more gas projects despite the risk of a shortage.
"I will make every decision based on the information before me based on the law as it stands now," she said.
"If their new project can be developed without destroying our natural environment, then it gets the tick, it's as simple as that."
Independent Climate Council energy expert Andrew Stock said Australia should be accelerating investment in renewable sources and energy storage.
"There is no shortage of hydro power, most gas storages are near full so it would take significant coal plant failures to create a gas shortage," he said.
Friends of the Earth campaigner Freja Leonard said AEMO has identified failures of government to help homes switch off gas in favour of clean energy.
"Any actual shortfalls experienced from now is essentially government failure writ large across the climate and economic landscape of Australia."
