Scott Morrison is promising to build a gas power plant in the Hunter Valley if the private sector does not step in.
The prime minister is giving power giants seven months to come up with a plan to replace 1000 megawatts of power, which will need to be replaced once the Liddell coal-fired station closes in 2023.
He also plans to expand a small gas hub in Queensland, which could link five gas basins.
Energy Minister Angus Taylor said Australia needed more gas supply.
“In combination, all of this is about making sure we put downward pressure on prices, industry has the energy it needs and households and small businesses have access to affordable, reliable power,” he said.
In a warm-up for the federal budget, the prime minister will on Tuesday pledge $53 million to unlock more gas for the domestic market.
Mr Morrison plans to negotiate a new deal with three east coast LNG exporters, deliver three domestic basins in the Northern Territory and Queensland, and consult on a possible gas reservation scheme.
If business does not step up, the government will consider – as it has for the electricity sector – action such as streamlined approval processes or underwriting.
Consumers are expected to benefit from more transparent pricing, with the gas trading hub at Wallumbilla in Queensland designated the “Australian Gas Hub”.
Industry would be encouraged to come up with a code of conduct for contract negotiations with commercial and industrial users, but if such a code is not agreed by February 2021 the government would consider a mandatory code.
“To help fire our economic recovery, the next plank in our JobMaker plan is to deliver more Australian gas where it is needed at an internationally competitive price,” Mr Morrison said.
“We’ll work with industry to deliver a gas hub for Australia that will ensure households and businesses enjoy the benefits of our abundant local gas while we hold our position as one of the top global liquefied natural gas exporters.”
Resources Minister Keith Pitt said it would drive job creation and economic growth in northern and regional Australia.
The first of the “strategic basin plans” will be Beetaloo Basin in the NT, followed by the North Bowen and Galilee Basins in Queensland.
The move won’t be welcomed by environmentalists who have been arguing Australia should be investing in renewable energy.