Jemena Gas Networks (NSW) Ltd
Fact Sheet
Changes in the gas market: what do they mean for
me?
Public
27 February 2015
An appropriate citation for this paper is:
Fact Sheet - Changes in the gas market: what do they mean for me?
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CHANGES IN THE GAS MARKET: WHAT DO THEY MEAN FOR ME?
CHANGES IN THE GAS MARKET: WHAT DO THEY MEAN FOR ME?
Natural gas has always been a safe, reliable and value-for-money way of powering homes and small
businesses in NSW.
But the Eastern Australian gas market is expected to undergo big changes, with major implications for both gas
customers and gas distribution businesses like Jemena. Most significantly, the changes are likely to put upward
pressure on end-retail gas prices, which will affect the competiveness of gas as a fuel option.
Our customers and stakeholders have told us that they want to know more about these changes to the market,
and better understand the likely impact on them. The sections below outline the key changes, and discuss what
they mean for gas prices and customer bills, including the changes in demand for and use of our distribution
network.
WHAT ARE THE KEY CHANGES?
Getting gas to our customers to produce their hot water, heat their homes or cook their meals involves many
businesses. The costs of providing these services are recovered from the customers that use them.
Our network charges make up around half of a typical residential customer’s gas bill. The costs associated with
producing the gas make up around 25 per cent, as do the retailers’ costs of marketing, billing and interacting
with customers. The remainder is made up of the costs of transporting gas across ‘high pressure’ pipelines from
inter-state (see Figure 1).
Figure 1: Customers’ gas bills recover all the costs of supply including rising gas production costs
Public—27 February 2015 © Jemena Gas Networks (NSW) Ltd
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CHANGES IN THE GAS MARKET: WHAT DO THEY MEAN FOR ME?
Customers may not see our network charges on their gas bill, as retailers incorporate our charges in their endretail prices, along with the other costs of producing and supplying gas.
The changes over the coming years will primarily occur in the gas production sector, which currently accounts
for 25 per cent of a typical residential gas bill. However these changes will have implications for the other
sectors.
Historically, the gas produced in the Eastern Australian states has been consumed domestically within these
states. However, gas producers are now developing new conventional and coal seam gas fields, which will
increase the amount of gas they produce. They are also establishing Liquefied Natural Gas (LNG) export
facilities.
These changes will enable them to access the international market for natural gas, with its strong demand and
higher prices. As the LNG export facilities come on stream, the domestic wholesale price of gas is expected to
rise towards international levels. It is not certain how far and how fast this price will increase in the medium
term, as this will depend on many factors. However, there is general agreement the wholesale gas price will rise
significantly over the next five years.
Looking further ahead, there is even more uncertainty. For example, the wholesale price of gas in Eastern
Australia may continue to rise in line with higher international prices. Alternatively, these higher prices may
provide incentives for further development of domestic gas supplies, which could increase supply and reduce
pressure on prices. In addition, like prices for oil and many other commodities, the international wholesale gas
price is affected strongly by changes in the global and regional economies, which affect supply and demand in
the world market.
WHAT WILL THESE CHANGES MEAN FOR OUR CUSTOMERS AND OUR BUSINESS?
The gas market changes outlined above are likely to affect both Jemena and our customers. The key impacts
include upward pressure on end-retail gas prices and customer bills as well as flattening or falling demand for
gas. In turn, this will drive further innovation in the gas sector including in how we operate our gas network.
Upward pressure on end-retail gas prices customer bills
Rising wholesale gas prices will put upward pressure on end-retail gas prices, and ultimately on customers’ gas
bills. The size of customers’ bill increases is uncertain and will depend on how much gas they consume
including how customers they respond to these increases in end-retail gas prices.
For example, over the next five years, we estimate that rising
wholesale gas prices could result in an increase of more than:

25 per cent for residential customers with typical gas
usage
(say, using gas for heating or hot water), or around $200 per annum

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80 per cent for typical industrial customers (using gas for
manufacturing) or over $1 million per annum.
Public—27 February 2015 © Jemena Gas Networks (NSW) Ltd
CHANGES IN THE GAS MARKET: WHAT DO THEY MEAN FOR ME?
Flattening or reducing gas demand
Most residential and business customers in NSW have access to a range of options for powering their domestic
and business appliances, including electricity, gas and solar. In recent years, gas demand has grown by around
2 per cent per annum as electricity prices rose sharply and more customers chose to connect to gas.
However, as rising wholesale gas prices put upward pressure on end-retail gas prices, it is likely that gas
demand from both residential and business customers will flatten or even fall. For example, upward pressure
on end-retail prices (alongside falling end-retail electricity prices) will:

encourage our existing gas customers to reduce their gas usage and potentially switch to alternative
sources of powering their homes and business, such as using reverse-cycle air conditioning for heat, or
solar-powered hot water

make it more challenging for us to attract households or businesses to switch to gas for cooking, heating
or hot water

encourage appliance manufacturers to invest further in energy-efficient technologies.
Large industrial customers tend to use only the fuel source for which their plant is designed. Over many years,
the gas demand of these customers has remained fairly constant at around 60 PJ per year. However, we expect
it that it will decline in the coming years as a result of the closure of several large industrial facilities and
challenging economic conditions, including rising end-retail gas prices.
Figure 2: We expect our customers’ demand for gas will flatten or decline over the next 5 years
120
100
PJ
80
60
40
20
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
June 30 Ending Year
Large industrial customers (forecast)
Residential and small business customers (forecast)
Large industrial customers (historical)
Residential and small business customers (historical)
Source: Jemena, Core Energy
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CHANGES IN THE GAS MARKET: WHAT DO THEY MEAN FOR ME?
Changing how we operate our gas network
Historically, gas has entered Jemena’s distribution network in only a small number of places, reflecting the
location of the existing transmission pipelines.
However, rising gas production costs and end-retail gas prices may lead to changes in the way that gas will be
brought into the NSW market as gas producers and retailers respond to the changes in market conditions.
These changes will require us to adjust the way we operate our gas network, and the physical network itself. For
example, construction is currently underway to allow gas to enter our network near Newcastle. Such changes
affect our capital costs, which may have flow-on impacts on our prices.
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Public—27 February 2015 © Jemena Gas Networks (NSW) Ltd