Relatively high transport costs limit opportunities to trade in gas such that gas collected from each basin is principally sold into the nearest market. Gas from the Bowen-Surat Basin, for example, is principally marketed into Queensland.

Western Australia and the Northern Territory are geographically isolated from the major eastern and southern markets and gas is not traded across state borders.

Gas is sold mostly under confidential long-term take or pay contracts. Historically contracts have lasted for up to 30 years, but more recently contracts have typically been shortened to 10 to 15 years. Unlike LNG prices, prices under domestic gas contracts are generally not related to oil prices.

Because gas contracts are confidential, comprehensive price information is not readily available.

Natural gas

Natural gas is a versatile source of energy, which has a range of industrial, commercial and domestic applications, including electricity generation (mainly for fuelling intermediate and peaking generators).

In Australia natural gas is predominantly used for industrial manufacturing purposes and for electricity generation. The mining sector is also a major user of gas in Western Australia. The residential sector accounts for only a small share of consumption in all states and territories, except in Victoria where the sector accounts for around a third of total consumption.

All major capital cities in Australia have access to natural gas supplies.

In a commercial and residential setting natural gas is used for space conditioning and refrigeration, heating and cooking. Natural gas also has the advantage that it burns cleaner than other fossil fuels, such as oil and coal, and produces fewer greenhouse gas emissions per unit of energy released. For an equivalent amount of heat, burning natural gas produces about 45 per cent less carbon dioxide than burning black coal.

Natural gas is predominately made up of methane, a colourless and odourless gas. There are two main types of natural gas used in Australia – conventional natural gas and coal seam methane. Conventional natural gas is found in underground reservoirs trapped in rock, often in association with oil. It may occur in onshore or offshore reservoirs. Coal seam methane is produced during the creation of coal from peat. The methane is adsorbed onto the surface of micropores in the coal. There are also a range of alternative renewable sources of methane, including biogas (landfill and sewage gas) and biomass, which includes wood, wood waste and sugarcane residue (bagasse). These renewable sources of gas comprise about 16 per cent of Australia’s primary gas use.