Resources Minister Gary Gray wants more exploration of Australia’s natural gas reserves, warning that competition from Russia and Africa could threaten export into Asia.
Gray warned that without new gas supplies there would be "unrestrained upward pressure on gas prices", but was quick to rule out a reservation policy.
"Let me say very clearly, a reservation policy could not lead to lower gas prices or more gas," Gray said.
"Calls for intervention in the market only serve to dampen any appetite for the very investment that's needed to bring on new gas supplies," he said.
"We must allow our markets to respond as they are intended to do."
Gray also denied that gas prices were rising due to the massive development of LNG facilities on the east coast claiming that a gas price spike would occur "irrespective of the development of the east coast LNG industry”.
He called on companies to adopt new technologies such as floating LNG for a "productivity step change" and to ensure resources were available, Financial Review reported.
Gray has long been in favour of FLNG technology and has recently ventured to push for the development of Woodside’s Browse gasfield through the technology as competition from other gas producing countries intensifies.
"Competitors are coming both from Russia, through the pipeline, and they will come from East Africa – there are very large, newly discovered gas resources off the coast of East Africa,” he said.
"These resources are pointed directly at our growing Asian markets."
However Gray pointed out that Australia would soon be the "only country in the world to use three modes of natural gas LNG production – offshore, floating and gas from coal seams".
The industry warned that with wholesale gas prices more than doubling in the past decade from $3 to $8 a gigajoule, gas production needed to ramp up.
"It's quite possible if we don't access enough gas [before 2014] that there will be a constraint on the market as that initial demand increases fairly quickly," said chief executive of the Australian Pipeline Industry Association, Cheryl Cartwright.
CEO of The Australian Petroleum Production and Exploration Association, Rick Wilkinson, says the main driver on upward prices is the high cost of gas extraction.
"It's very costly to develop coal seam gas”, he said.
"There is not $3 gas left in Australia, we have produced it, it's been contracted and now it's moving up to the next tranches of gas that are available."
"Bringing on additional, competitive gas is the right answer."