From intent to action: the long-term role of natural gas in Australia's energy transition

Strategy, reform and what's next 11 min read

The past year has seen a number of strategic developments, across both regulation and industry, that reinforce the importance of natural gas in Australia's energy transition.

It is now increasingly clear from a policy perspective that natural gas has a long-term role as a transition fuel in the net zero journey, remaining a critical part of the energy mix and central to Australia's energy security through to 2050 and beyond.

In this Insight, we examine the developments that have helped clarify the path ahead and outline the Federal Government's latest proposed changes.

Key takeaways 

• Natural gas remains critical to Australia's energy security and transition: while Australia's energy mix evolves, natural gas will continue to play a vital role as a transition fuel for domestic consumption and a key export commodity, due to its reliability and the current lack of commercially viable alternatives.
• Policy shift towards balance: recent Federal Government strategies reflect a more measured approach to natural gas, aiming to meet emissions reduction targets while ensuring energy security, affordability and international competitiveness.
• Regulatory reforms signal support for certainty: the Government will undertake a comprehensive review of current gas market policies with an aim to streamline regulations, address market imbalances and ensure domestic supply security without compromising Australia's international trade or investment reputation.
• Stakeholder engagement is crucial: stakeholders are encouraged to participate by responding to the Government's proposed review, and have their say on the proposed changes to Australia's future gas market regulation. Submissions close on 15 August 2025.

The long-term role of natural gas as a transition fuel

Previously, when perspectives were more varied, we considered two possible pathways for natural gas in the energy transition:

• a rapid transition away from natural gas as a source of fuel; or
• a continued, longer-term role for natural gas as a transition fuel in the journey to net zero.

Recent shifts in government strategy now reflect a growing recognition that phasing out natural gas too quickly, particularly alongside the closure of coal-fired power stations and before lower-carbon alternatives are commercially viable, would be premature. Such an approach would undermine energy reliability, with flow-on effects for consumers, industry and the broader economy.

In response, the policy focus has shifted toward a more balanced approach: one that meets Australia's emissions reduction targets while also safeguarding energy security, affordability and international competitiveness.

Supporting this direction will require not just continued investment in gas supply and infrastructure, but also a policy and regulatory environment that encourages capital deployment and mitigates unnecessary complexity or risk.

Policy updates supporting the long-term role of gas 

Any future changes to the regulatory framework will need to be carefully managed to ensure the already significant compliance burden on the gas industry does not limit its ability to fulfil its critical role as a transition fuel. Overregulation risks undermining further investment and development of Australia's natural gas resources and, ultimately, supply, at a time when energy security and regulatory certainty is crucial.

Over the past year, several key policy and market updates have reinforced the role of gas in Australia's energy transition:

These developments signal a clear direction from government that natural gas will continue to play a strategic role in Australia's energy mix and transition to net zero.  

• the Department of Industry, Science and Resources' report, 'Future Gas Strategy', released 9 May 2024 (Future Gas Strategy).
• the Australian Energy Market Operator's (AEMO) Gas Statement of Opportunities for Australia's East Coast Gas Market, released March 2025 (East Coast GSOO).
• AEMO's Gas Statement of Opportunities for Western Australia's Gas Market, released December 2024 (WA GSOO).
• the national Gas Market Review, announced 30 June 2025 by the Department of Industry, Science and Resources (DISR), jointly with the Department of Climate Change, Energy, the Environment and Water (DCCEEW), and the release of the related Consultation Paper calling for stakeholder feedback.

Together, these developments signal a clear direction from government that natural gas will continue to play a strategic role in Australia's energy mix and transition to net zero.

Strategic direction under the Future Gas Strategy

The Future Gas Strategy sets out a national plan for the production and use of gas through to 2050, providing greater policy certainty for long-term decision-making. Its central aim is to support the decarbonisation of the Australian economy while safeguarding domestic energy security and maintaining the nation's reputation as a reliable trade and investment partner.

Underpinned by six guiding principles, the Strategy emphasises:

• the continued need for reliable and affordable domestic gas supply (Principles 2 and 4); and
• the importance of ongoing investment in new gas sources to ensure future availability (Principle 3).

The Future Gas Strategy recognises that natural gas will continue to play a critical role through the transition, particularly where alternatives are not yet commercially viable, and confirms that significant investment will be required to support both domestic and export consumption. Demand is expected to remain relatively consistent until at least 2035, largely due to long-term contracts. It is crucial that these long-term arrangements evolve with the regulatory landscape, including the external impact of international regulatory pressures, to avoid being 'left behind' on the path to net zero.

Regulatory reform through the Gas Market Review

Building on the Future Gas Strategy, the Government has announced a comprehensive Gas Market Review (the Review), led jointly by the DISR and the DCCEEW. This federal-level review is focused on assessing the effectiveness of current gas market regulation and identifying options for reform. While the review does not extend to WA's Domestic Gas Policy or explicitly recognise its role, it acknowledges that any new federal reforms will need to co-exist with established state and territory reservation policies.

The Review will examine the operation and effectiveness of several existing mechanisms, including:

• Australian Domestic Gas Security Mechanism (ADGSM): introduced in 2017, the ADGSM is a government intervention to ensure there are sufficient levels of natural gas to meet the needs of Australian energy users. Although it has never been activated, the Government again decided not to trigger it for the October to December 2025 quarter.
• Gas Market Code (Code): a mandatory industry code prescribed under Part IVBB of the Competition and Consumer Act 2010 (Cth), to ensure the supply of wholesale gas to the domestic market is carried out at reasonable prices and on reasonable terms.
• Heads of Agreement with east coast LNG exporters (HoA): last entered into in September 2022, a voluntary mechanism under which LNG exporters agreed to offer uncontracted gas to the market on 'competitive market terms' and 'with reasonable notice' before offering it to the international market.

The scope of the Review will also focus on:

• Domestic gas supply: evaluating the merits of alternative federal initiatives to improve the security of domestic supply in the medium to long-term. There is a strong focus on proposing reforms to recognise contributions to the domestic market to ensure there is sufficient natural gas supply and exert downward pressure on domestic gas prices.
• Reasonable gas prices: assessing whether Australia's wholesale and retailer domestic gas prices reflect market fundamentals and comparing regulated 'reasonable pricing provisions' with market-based pricing.
• Market transparency: striking a balance between information asymmetries between gas producers and buyers over price and supply information against managing reporting and compliance burdens.
• Market conduct and good faith rules: the consideration of conduct and associated rules to minimise bargaining power imbalances.
• Competition in both the gas supplier and user markets: considering the findings of the Australian Competition & Consumer Commission's (ACCC) December 2024 Gas Inquiry Report (ACCC Gas Inquiry) and how competition can affect bargaining power, supply and pricing outcomes.
• Quality and reliability of Australia's international trade reputation: reviewing how these regulatory mechanisms impact the competitiveness of Australia's LNG export industry.
• Role of market bodies: evaluating the roles of AEMO, the ACCC and the Australian Energy Regulator's (AER) role in governance, information collection, reporting and implementation of the mechanisms.

The Review is likely to shape how Australia's gas market will be regulated in the years to come. It also signals a shift towards greater regulatory scrutiny, with potential implications for compliance obligations, pricing models and investment decisions.

Input from stakeholders to inform future reform

To support the implementation of the Future Gas Strategy, the Government has released a Consultation Paper (the Paper) seeking feedback from industry and other stakeholders on how existing gas market regulations could be improved to ensure a reliable and affordable long-term gas supply.

The consultation process aims to engage a range of stakeholder groups from major gas producers and consumers to those with environmental concerns about gas and its long-term role in Australia's energy transition.

A key question raised by the Review is how increased governance can be introduced without compromising Australia's international trade reputation or deterring future investment. In addition to responding to the proposals outlined in the Paper, stakeholders are encouraged to suggest further reforms.

Submissions close at 5pm on Friday 15 August 2025.

In order to guide the Review, the Paper sets out a series of policy themes, proposed on a sliding scale from 'Minimal change' to 'Incremental change' through to 'Fundamental Reform'.

The key question raised by the proposed reforms is how greater regulatory control will be implemented without damaging Australia's trade reputation. These policy themes are summarised below:

Actions you can take now

• Assess the potential impact on your organisation: review the reform options proposed in the Consultation Paper and consider how they could affect your operations, investment plans, long-term supply arrangements or exposure to regulatory risk.
• Review the Consultation Paper in detail: visit DCCEEW's website to review the full Consultation Paper. It outlines the Government's thinking on future gas regulation and the potential pathways being considered, which could have significant implications for the broader energy and industrial landscape.
• Make a submission: actively participating in the consultation process is critical to ensuring your organisation's interests and concerns are heard. Submissions will help shape the final policy direction and influence how the gas market is regulated in the years to come.

If you have any questions, please reach out to any of the contacts listed below.