Gas price increases no cause for reservation policy: report

There are new warnings that gas prices will skyrocket as Queensland's huge LNG export projects start production next year.

The independent think tank, the Grattan Institute, has predicted that some households could see their gas bills jump by hundreds of dollars annually as the $60 billion a year export industry takes off.

But the institute's report, Gas at the Crossroads, is opposing calls for some gas to be reserved for domestic use, even though it acknowledges that manufacturers will face severe pressure.

The report has recommended that governments might consider raising tax and royalty rates on gas producers in response to rising prices.

"Governments need to ensure that the public really does benefit by levying the appropriate taxes and royalties on LNG exports," the report said.

Grattan Institute energy program director, Tony Wood, said consumers may face gas price increases over the next few years of more than $300 annually.

The report has found that high gas users in Melbourne can expect price rises of about $435 a year.

Mr Wood said manufacturers are expected to face even bigger increases.

"If you're a small business - a drycleaner, a baker or something like that - you might use in the order of about 4-500 gigajoules a year, and that would mean you're up for a gas bill increase of something like $2,500 to $3,000," he told AM.

The report found that electricity and gas prices in Australian homes have already increased significantly over the past five years because of infrastructure upgrades and the expiration of energy contracts.

But the completion of coal seam gas projects in Queensland is predicted to see gas prices more than double over the next few years because local consumers will have to pay the higher export price for gas.

Debate over WA gas 'protectionism'

To avoid such export price parity, Western Australia puts aside 15 per cent of gas reserves for domestic use.

However, Tony Wood said the policy is protectionism which has deterred investment and increased gas prices in WA.

"Western Australian Government's very own regulator recommended that that reservation policy should be removed and was almost doing the opposite of what it was supposed to," he argued.

"That is, by saying that a certain amount of gas for LNG projects has to be reserved for domestic markets was actually providing a barrier to people going ahead and developing gas in the domestic market."

Mr Wood was not able to give examples of which investments had been discouraged by the WA gas policy.

His analysis has been disputed by Matt Brown, the head of WA's DomGas Alliance which represents natural gas users such as Fortescue Metals and Alcoa.

Mr Brown said that 2013 was a record year for gas exploration investment and LNG exports and there has been record energy investment in WA in five of the seven full years since the policy was introduced in 2006.

He also argued that the policy has not deterred big projects including Chevron's Gorgon and Wheatstone projects off the north-west coast of WA.

Scott McDine, the national secretary of the Australian Workers Unions and spokesman for the Reserve our Gas Coalition, also disputes the Grattan Institute's analysis.

The AWU has called for a national gas reservation policy in line with policies implemented by other major gas exporting nations such as the United States.

The union commissioned a report which found that one-in-five manufacturers could shut down because of skyrocketing gas prices.

"The impact here in not only going to be on households; it's also going to be on members of my union and members of the broader community when it comes to their jobs, and the impact this is going to have on Australian manufacturing," he told the ABC in an interview.

"This is where I'm a little disappointed in the Grattan Institute, to be honest, because I don't think they're actually grasping this issue."

Not much governments can do: Grattan

Mr Wood dismissed calls from the Australian Industry Group for a national interest test on LNG exports saying it would be too bureaucratic.

He has conceded the next few years will be a difficult time for businesses and households, but added that he does not support government intervention such as subsidies.

"I think what's come out in this conversation is there's not a lot of good news here as to what governments can do to fix what will become, over the next couple of years, a significant problem for some," he said.

The Grattan report finds that, over time, the gas price is expected to peak and fall back because increasing prices will lead to increased supply.

It also predicts that the cost increase will price gas out of power generation and lead to more coal being used for electricity.