The Economic Impact of Energy Crisis and Gas Imports in Victoria and NSW

You’re about to cook dinner and as you turn on the stove, you catch a news alert on your phone—energy prices are going up again. You pause, sigh and think about how much higher the next bill will be. Sound familiar? Victoria and New South Wales are in the middle of an energy crisis. Families are stretching their budgets. Small businesses are feeling the strain. And prices? They’re climbing faster than you can preheat your oven. The reliance on imported gas isn’t helping either—it’s like relying on a slow delivery service when you’re starving. So, let’s dive in. What’s causing all this? Who’s feeling the heat? And how do we cool things down?

Table of Contents

1. What is the Energy Crisis?
2. Causes of the Energy Crisis in Victoria and NSW
3. Why Gas Imports Matter
4. Key Sources of Gas for Victoria and NSW
5. Economic Consequences
6. Government and Policy Responses
7. The Role of Renewable Energy
8. Conclusion
9. FAQs

An energy crisis happens when the available energy sources are unable to fulfill the needs of a population, industry or nation. It’s like trying to fill a dam with water during a drought—there just isn’t enough to go around. It leads to energy prices skyrocketing, causing widespread economic strain, particularly on households, businesses and industries.

It’s exactly what Victoria and NSW are facing right now. These states rely heavily on gas imports to meet their energy needs. But when global gas prices spike—like in 2022, when they hit record highs—it creates serious challenges. Households and businesses are the ones feeling the strain, as costs keep climbing and stability feels out of reach.

An energy crisis is not only a temporary issue of supply shortages but also reflects the broader issues related to the sustainability and security of energy sources, often leading to long-term societal and environmental impacts.

1) Depleting Gas Reserves: Local gas fields are running out

The energy challenges in Victoria and NSW stem from a combination of factors, including the depletion of local gas reserves after years of extraction. While Victoria still relies heavily on domestic production, imports are increasingly required during high-demand periods. The issue is compounded by infrastructure limitations, regulatory hurdles and a lack of investment in new gas projects. These constraints put pressure on prices and supply, making it harder for the states to ensure a stable and affordable energy future.  

2) Global Market Issues: Demand and tensions affect supply

The global energy market has significantly influenced the energy crisis in Victoria and NSW. Rising worldwide demand, post-pandemic recovery and supply chain constraints have made energy resources less predictable. Geopolitical tensions, including the ongoing war, have further exacerbated the situation. Many countries ceased trading with Russia, a key player in the global energy market, which once led LNG exports. While Russian LNG exports dropped substantially in 2022, contributing to global price increases, other factors like supply chain disruptions and surging post-pandemic demand have also played critical roles in keeping prices elevated across many regions.

3) Policy Gaps: Lack of renewable energy adds to the problem

The energy challenges in Victoria and NSW show the need to keep building on renewable energy efforts. Both states have made good progress— Victoria is working towards 40% renewables by 2025, 50% by 2030 through programs like Victorian Renewable Energy Target, which also helps lower electricity costs. NSW is moving forward with its Electricity Infrastructure Roadmap to switch to greener energy. Still, their reliance on fossil fuels shows the need to keep pushing for more renewable energy to secure a steady and sustainable energy future.

Despite being one of the top two largest global exporters of liquefied natural gas (LNG), Australia still faces notable challenges in meeting local gas needs, especially in New South Wales (NSW). While Victoria relies primarily on domestic gas production from the Gippsland Basin, NSW heavily depends on imports due to limited local production. The domestic demand for gas, particularly for heating, industrial use and power generation, competes with the demand from international markets. Consequently, when domestic supply is constrained or production capacity is limited, states like Victoria are forced to rely on imports or more often, are left vulnerable to volatile international gas prices. This dynamic exposes both states to the fluctuations of global energy markets, with NSW particularly vulnerable to price spikes and supply disruptions.

In Victoria, gas plays a smaller role in power generation compared to coal and renewables, while NSW relies more on gas for electricity and industrial use. This dependency makes energy security a key concern for NSW, as tight supplies or global price increases can significantly impact its industries and consumers. For both states, ensuring stable and affordable energy supply remains a critical challenge in the face of these vulnerabilities.

• Gippsland Basin (Bass Strait): The Gippsland Basin, located off the coast of Victoria in Bass Strait, is a major domestic source of natural gas for Victoria and New South Wales. It has been a critical supplier for decades, contributing significantly to the region's energy needs.
• Otway Basin: The Otway Basin, situated offshore from the south of Victoria, is another key source of natural gas. It plays an important role in supplying gas to both domestic markets and industrial users in the region. It must however be noted that its levels of production have seen a gradual decline in the last couple of years.
• Cooper Basin (via pipelines): The Cooper Basin, located in South Australia, provides natural gas to Victoria and New South Wales via an extensive pipeline network. This basin has been a reliable contributor to the gas supply for the eastern states.
• International Markets: In 2022, Australia imported $2.35M worth of LNG. Australia imported primarily from Malaysia, South Korea, China, the US and Singapore. Between 2021 and 2022, the fastest growing import markets for Australia's liquefied natural gas were South Korea ($76.6k), the United States ($5.55k) and Japan ($3.04k).

• Rising energy prices: The cost of imported gas has a direct impact on energy prices. In 2022, global gas prices surged, with Europe’s wholesale prices hitting over $30 per MMBTU, leading to a world average of $9.44 per MMBTU. This contributed to a sharp rise in electricity prices in NSW by 2023. Families and businesses are now finding it harder to manage their finances and this price increase is creating a ripple effect that impacts the entire economy.
• Impact on businesses: The energy crisis is having a profound impact on industries and businesses nationwide. As energy prices rise and supply becomes more unreliable, industries—particularly in manufacturing, heavy industry, mining, agriculture, hospitality and retail—are struggling to remain competitive, facing higher operational costs and financial strain. This has led to job losses, downsizing and even closures in some sectors. For asset managers, building owners, and tenants, the increased operating costs of energy-intensive buildings are making them less attractive to potential tenants, who are looking to cut expenses. With lease renewals at risk and rental income declining, businesses are grappling with both financial and operational uncertainty, putting further pressure on the economy.
• Effect on household budgets: With energy costs rising, households are facing higher energy bills, leaving them with less disposable income for other essential expenses. This reduction in spending power means people are cutting back on other purchases, which in turn slows down the economy and could have long-term negative impacts on growth.

Current Policies

• Price Caps: The government has introduced price caps on energy to help protect families from soaring costs. These limits ensure that consumers aren’t completely overwhelmed by increasing prices in the market.
• Subsidies and rebates: To further support households, subsidies have been introduced to ease the financial burden of rising energy bills. Rebates like the air conditioning rebate and heat pump hot water rebate are offered for appliances such as air conditioners, heat pumps and more, making energy-efficient solutions more accessible and affordable.
• Energy Projects: New infrastructure projects are being rolled out to improve the storage and supply of energy. This includes building new power stations and expanding the network, which is aimed at ensuring a more stable energy future.

Recommendations for Mitigating the Crisis

• More Renewable Energy: Investing in renewable energy is crucial. Solar and wind power are sustainable alternatives that can reduce reliance on gas, providing a more secure and affordable future.
• Energy Efficiency: By embracing new technology, Victoria and NSW can improve energy efficiency. This means using less energy to achieve the same results, which lowers costs and helps preserve resources.
• Stronger Energy Security: A key solution is to produce more local energy. Investing in local energy production, particularly through renewables, can help strengthen energy security and reduce dependence on external sources.

Renewable energy is the long-term solution to the crisis. Reducing energy waste is crucial for both saving money and protecting the environment. By implementing simple measures like sealing air leaks, upgrading insulation and using programmable thermostats, significant energy savings can be achieved. Adopting energy-efficient technologies such as LED lighting, energy-efficient appliances and better building designs further reduces energy consumption. These efforts not only lower costs for businesses and households but also minimise their carbon footprint. In the bigger picture, energy efficiency decreases overall energy demand, easing the strain on the energy grid and ensuring a more stable and reliable power supply.

Australia’s energy crisis is a significant challenge, but it also offers a chance for meaningful transformation. By transitioning to renewable energy, improving energy efficiency and encouraging public involvement, Australia has the potential to build a more sustainable and prosperous future.

Now is the time for unified action, benefiting both the nation and the planet. Through collective efforts, Australia can not only navigate its energy hurdles but also emerge as a leader in the global movement toward a greener and more sustainable world.

1) Why is Australia in an energy crisis?

Australia is facing an energy crisis driven by the phase-out of aging coal power plants, increasing electricity demand, an incomplete transition to renewable energy sources, and rising global gas prices, resulting in supply shortages and higher energy costs.

2) Why are energy prices so high right now?

Energy prices are high due to volatile gas supply, global energy price increases, and reliance on aging coal plants with high wholesale costs.

3) How much higher will energy prices rise?

The Australian Energy Market Commission (AEMC) has shared positive news in its 10-year energy price outlook. The report focuses on residential electricity prices within the National Electricity Market (NEM), excluding the Northern Territory and Western Australia. According to the modelling, increased renewable energy adoption and improved technology could lead to a 13% drop in electricity prices nationwide by 2034.

4) Is the energy crisis just happening in Australia?

No, the energy crisis is not unique to Australia; it is a global issue impacting many countries to varying extents.

5) When will the energy crisis end?

Unfortunately, the energy crisis doesn't have a set end date. However, there are positive developments that suggest the worst may be over.

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