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Gas and electricity market reform must focus on solving one problem
Written by
Beth Griggs (2025)
Beth Griggs
Published on
07 July 2026
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In December 2025, two key reports were published that will help reshape Australia’s energy markets.

The Federal Government’s Gas Market Review Final Report provided recommendations on improving the operation of Australia’s wholesale gas market. Meanwhile, an expert panel led by Dr Tim Nelson reported on the functioning of the east coast National Electricity Market (NEM).

Both reviews were undertaken at the same time and in the face of similar challenges.

The Gas Market Review was delivered following a period of significant government intervention in gas markets. The ACCC agrees that this intervention, over a 10-year period, could have unintentionally increased the risk of domestic gas shortfalls.1

Wholesale gas markets are for the large part, now characterised by short-term, one-year contracts between parties.2

One year contracting does not provide the long-term signals needed to support a well-functioning gas market.

These short-term contracting arrangements, identified by the ACCC, are the result of market and regulatory uncertainty, where gas sellers and buyers lack confidence in long-term settings.

The NEM Review was commenced ahead of the upcoming conclusion of the Capacity Investment Scheme (CIS) and the scheduled retirement of aging coal power stations. Similar to gas markets, it found the NEM’s spot market is not providing the long-term signals needed to support investment.

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The absence of long-term investment signals must be addressed

Energy ministers have recognised the problem and are progressing recommendations to address it. However, the devil will be in the detail.

At their May 2026 meeting, Australia's Energy and Climate Change Ministerial Council agreed to progress recommendations from the NEM Review.3 The proposed Electricity Services Entry Mechanism (ESEM) is designed to provide the long-term investment signals necessary when the CIS ends in 2027. Importantly, the ESEM is expected to support the entry of firm, dispatchable generation that can run for days or weeks needed to replace coal. Legislation is expected in the second half of 2026.

Similarly, gas infrastructure investment is significant and long term in nature. Infrastructure providers like APA need long-term arrangements to underpin significant new capital expenditure. 

The Gas Market Review Final Report recommended the establishment of a domestic reservation framework to mitigate potential gas shortfalls and delink domestic and international prices.4 Consultation on the design commenced in May 2026 with a key aim of drawing long-term contracts back into the market. APA supports this objective.

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Establishing a well-designed domestic reservation

A domestic reservation framework that facilitates long-term, domestically priced contracts will lead to a much more stable and well-functioning gas market that requires less intervention over the long-term.

Western Australia has had a 15% domestic reservation since 2006 and shows that finding the right balance is achievable.

For APA, a well-designed gas reservation will:

  • drive long term contracting, which is essential to support the needed investment in gas infrastructure, including Gas Powered Generation;
  • establish reasonable prices to support industry and consumers, while underpinning a strong LNG export market;
  • provide policy certainty, with less risk of government intervention;
  • support the development of additional supply that can meet the requirements of the domestic market and our regional partners.

Some elements of the draft reservation framework have the potential to undermine these objectives.

In APA’s submission to the consultation process, we recommended that:

  • the proposed Domestic Supply Obligation (DSO) should remain stable and only be reviewed in exceptional circumstances;
  • the draft framework should move from regular approvals and variations to approval periods of at least five years to support more certainty in the market;
  • regulated entities should be required to demonstrate, as part of their export applications, how they will acquit their DSO through long and short bilateral contracting;
  • any varied domestic supply obligation based on an infrastructure constraint should only extend for the time period needed to resolve the constraint;
  • reforms are needed to restore balance to the national gas framework to improve the investment environment for the needed gas infrastructure.

Gas infrastructure providers have broadly signalled their willingness to invest and APA continues to progress early investment in Stage 3 of its East Coast Gas Grid Expansion Plan. A more balanced national gas framework, coupled with a return to long-term contracting, are the key enablers required to ensure that investment comes to fruition.

1 ACCC, Gas Inquiry 2017-2030, September 2025, pp25-26

2 ACCC, Gas Inquiry 2017-2030, March 2026, p21

3 Queensland withheld its support to develop the ESEM

4 Commonwealth Government, Gas Market Review Final Report, December 2025, p5

Gas and electricity market reform must focus on solving one problem