Australian households and businesses on the East Coast could see wholesale gas prices surge to between AUD $18 and $20 per gigajoule (GJ) within the next two to five years, despite the federal government’s proposed Domestic Gas Reservation Scheme (DGRS). New modelling from Commonwealth Bank (CBA) released on September 17, 2026, indicates that infrastructure constraints, particularly limited pipeline capacity, will leave Sydney and Melbourne especially vulnerable to these increases.
The warning comes just days after the Hon Madeleine King MP, Minister for Resources, released exposure drafts for the DGRS legislation on September 10, 2026, with public consultation open until September 24, 2026. The proposed scheme aims to mandate that liquefied natural gas (LNG) exporters supply up to 20% of their total exports to the domestic market.
Reservation Scheme Faces East Coast Reality Check
The DGRS is designed to bolster domestic supply and theoretically put downward pressure on prices by ensuring a portion of Australia’s gas remains onshore. However, CBA’s Head of Commodities and Sustainable Economics, Vivek Dhar, highlighted a critical flaw in its immediate impact for southern states. “This is an infrastructure problem. It’s a deliverability problem to Sydney and Melbourne,” Dhar stated, pointing to the declining gas production from Victoria’s mature fields and insufficient pipeline capacity to move Queensland gas south.
Wholesale East Coast gas prices have already nearly tripled over the past decade, climbing from typical rates of AUD $3 to $4 per gigajoule around 2014 to the current range of approximately AUD $13 to $14 per gigajoule. This significant increase followed the opening of Queensland’s LNG export terminals from late 2014, which linked domestic prices more closely to volatile international LNG markets.
CBA’s modelling suggests that while the DGRS could delay higher prices by 12 to 18 months nationally, its benefits could vary considerably between cities. Brisbane, with closer proximity to Queensland’s gas fields, may experience greater advantages than Sydney and Melbourne, which are at the end of the supply chain.
“The infrastructure issue means Australia could have enough gas nationally while still facing difficulty getting it to where it’s needed.” – Vivek Dhar, CBA Head of Commodities and Sustainable Economics.
Rising Costs for Homes and Industry
The implications of these potential price hikes extend beyond residential gas bills. Industry consumes a substantial portion of East Coast gas, with around 45% to 50% of demand coming from industrial users. Businesses reliant on gas for manufacturing, heating, or other processes could face significant operational cost increases, potentially impacting competitiveness and consumer prices for goods and services. For households, higher wholesale gas prices inevitably flow through to retail bills, exacerbating existing cost-of-living pressures.
While the federal government’s Energy Bill Relief Fund concluded at the end of 2025, state and territory specific concessions remain available for eligible households. For a comprehensive overview of ongoing support, readers can consult Australia’s Energy Bill Relief Landscape in 2026: A Comprehensive Guide to State and Federal Support.
Mitigating Future Price Shocks
CBA’s analysis also explored potential mitigations. Expanding north-to-south gas infrastructure, such as the proposed Bulloo Link pipeline project, could add critical capacity and delay the point at which prices reach the AUD $18 to $20 per gigajoule threshold by two to five years. Long-term government offtake contracts to underpin new Queensland gas supply and associated infrastructure could also support prices of around AUD $12 to $14 per gigajoule in Sydney and Melbourne over a 20-year period.
However, increasing gas production in southern Australia, while helpful, faces challenges due to higher production costs, making the economics more difficult. Industry leaders have also voiced concerns about the DGRS, with Santos CEO Kevin Gallagher warning in May 2026 that an improperly designed scheme could “kill investment in new supply,” potentially leading to future shortages.
The current wholesale gas prices, alongside the AEMO’s recent report of wholesale electricity prices plunging by nearly 50% in the June quarter due to renewable energy and battery storage, highlight a growing divergence in Australia’s energy market dynamics. While electricity markets benefit from increasing renewable penetration, the gas sector faces persistent supply and infrastructure challenges that continue to drive up costs.
For households looking to manage their overall energy consumption and costs, exploring options such as home batteries and virtual power plants can offer significant savings, especially when coupled with falling electricity prices. Information on maximising these benefits can be found in guides like Maximise Your Home Battery Savings: Earn $1,000+ Annually with a VPP in 2026.
The DGRS exposure draft is currently undergoing public consultation, with submissions closing on September 24, 2026. The final design of the scheme, and crucial investments in gas transport infrastructure, will ultimately determine the trajectory of East Coast gas prices for years to come.
East Coast Wholesale Gas Price Evolution
| Year | Average Wholesale Price (AUD/GJ) |
|---|---|
| 2014 | $3 - $4 |
| Post-2014 | $8 - $10 |
| 2026 (Current) | $13 - $14 |
| Projected (without mitigation) | $18 - $20 |