How Australian gas is used today

Gas use in Australia

Sustaining investment in all parts of our energy system to achieve our climate, energy, and social goals is a key challenge for Australia.

Today, natural gas supports our standard of living and Australia’s energy security, providing over a quarter of our energy needs. We use gas to heat and cool our homes and businesses, heat our water and cook our food. Gas is also an essential part of how we generate electricity. However, the way we use it in electricity generation varies across the country. In Western Australia, gas-power generation supports the electricity grid and many remote mine sites. The Western Australian Government has announced that gas will replace coal-fired generation by 2029. Uniquely among Australian jurisdictions, most Victorian gas consumption is in buildings (households and small businesses like restaurants). Victoria has policies to reduce this consumption by, for example, banning gas connections in new buildings. In the Northern Territory, gas is responsible for 88% of electricity generation. South Australia, which has some of the highest uptake of renewable power generation in the world, uses solar and wind during the day. At night, gas-powered generation helps fill the gap.

With this use of gas comes associated greenhouse gas emissions. To achieve net zero globally, we need gas to: 

• support renewable generation
• process critical minerals
• help to lower emissions in steel and cement
• produce fertiliser
• manufacture the products we need to build a net zero economy.

Most of Australia’s gas is exported as LNG to our region. Australia’s LNG exports support and sustain millions of households and businesses which rely on the energy generated from LNG. Australia has benefited from the high levels of investment, income and employment that our LNG exports bring to our nation’s economy. Between 2010 and 2020, direct investments in both up and downstream LNG facilities in Australia was nearly $250 billion. For the 2022–23 financial year, LNG was Australia’s second largest export by value, with export earnings of $92 billion (nearly 20% of total Australian export earnings).

Australia, like other countries, must move towards cleaner energy sources to reach net zero by 2050. To support this shift, Australia’s gas sector must make deep and permanent cuts to its greenhouse gas emissions while scaling up carbon management solutions. By 2050, Australia’s gas sector will be substantially different from today. Low emissions energy sources will grow in response to market signals and government policy. The ongoing role of natural gas both in Australia and globally will be defined by its cost and carbon competitiveness.

Read Section 1 of the analytical report for more information about Australia’s gas markets, and Section 3 for more information about the domestic demand outlook.

Gas-powered generation

The electricity sector is a major source of domestic gas demand. In 2021–22, gas-powered generation (GPG) consumed 520 PJ, or 33% of total Australian gas demand, producing around 5.7% of Australia’s greenhouse gas emissions. GPG is important for grid security and reliability as it can start up quickly. This means it can complement variable wind and solar generation and provide extra power supply during periods of peak electricity demand. 

The extent to which we use GPG in any given year depends on several factors. These include the coldness of the winter and the cost-competitiveness of alternatives. Gas-powered generators are versatile. They can scale up and down rapidly, and so can supply power during peak electricity demand (called ‘peaking’) and complement variable wind and solar generation (called ‘firming’). Consequently, the volume of gas used for electricity generation fluctuates with electricity market conditions.

Remote communities are often powered by stand-alone diesel grids. The cost and reliability of these can be challenged by the logistical complexities of trucking fuel over large distances, year round. Those relying on them, disproportionately First Nations communities, note that the unreliability of these microgrids has adverse community effects. This unreliability affects access to education and healthcare, and makes it harder to remain engaged on issues critical to culture and communities.

The mining industry often generates electricity using stand-alone micro grids. Mine sites are increasingly using GPG, or renewables firmed by GPG, to replace diesel power generation.

Gas use in industry

Natural gas is the largest source of energy for Australian industry. In 2020–21, Australia’s manufacturing sector consumed 380 PJ of gas, or about 26% of domestic gas supply.

Around 74% of industrial gas consumption is for heat. Industrial heat is part of many processes that support our modern economy and plays a pivotal role in our everyday lives. From the buildings we live and work in to the food we eat, society would look very different if we did not have access to industrial heat.

LNG facilities are significant consumers of gas to power compressors and generate electricity on-site.

Industrial heat use can be broken down into low, medium, and high heat applications. 

Lower-heat range temperatures (below 150°C) are used for: 

• manufacturing food and beverages
• chemical and paper production
• drying
• baking
• evaporation
• pasteurisation.

Medium heat range temperature (from 150° to 500°C) are used for: 

• more advanced chemical production processes
• refining biofuel
• dying and drying materials  in the textiles industry.

High-heat range temperatures (over 500°C) are used for:

• producing plastics
• smelting metals
• transforming limestone into clinker for cement 
• heating kilns that fire bricks and ceramics. 

Historically, the decision to use gas in these facilities has depended on how cost competitive the source and quality of heat is against alternatives. Low-emissions sources of industrial heat are entering the market for low temperature ranges through industrial heat pumps. For higher temperature ranges, the adoption of alternatives is limited because of technology challenges and high costs. 

Around 17% (65 PJ) of Australian industrial gas is consumed as a chemical feedstock. In addition to its use as an energy source, natural gas molecules are chemically transformed into other products. Many of these products are used in our everyday lives such as:

• plastics
• fertilisers
• packaging
• clothing
• tyres
• detergents
• insulators
• rubber
• propellants
• medical products 
• adhesives
• cosmetics. 

Decarbonising these everyday products will depend on the availability and price of substitutes like hydrogen and biomethane. These substitutes are not currently cost competitive with natural gas and will require sufficient scale. Achieving scale and cost efficiencies in low-emission hydrogen production is the only way to decarbonise chemical processes that need ammonia as an input. The Australian Government is undertaking a review of the National Hydrogen Strategy. This will position Australia on a path to be a global hydrogen leader by 2030 on both an export basis and for the decarbonisation of Australian industries.

Read Section 3 of the analytical report for more information about the use of natural gas as a feedstock.

Gas in homes and small businesses

Australian homes consumed an average of around 200 PJ of gas per year between 2011–2021, representing around 2.3% of Australia’s national net greenhouse gas emissions. Today, about 5 million households in Australia rely on natural gas. Most gas use in homes and small business is across Victoria, New South Wales, the Australian Capital Territory and to a lesser extent Western Australia and South Australia. 

Homes and small businesses use gas to:

• cook food
• heat water 
• warm and cool buildings. 

Household gas consumption is relatively stable, although unusually cold winters can increase demand. Electrification is possible as there are widely available, cost competitive electric alternatives to household gas appliances. Low-income households, renters and those in community housing face barriers to electrification. These include the cost of switching and a lack of control over which appliances to install. The retail cost of gas appliances remains competitive with electric alternatives. The cost of adding more electrical circuits or upgrading the household connection to the grid is likely to remain a barrier to low-income households, and will be a factor in landlords’ decision making.