Australians living in major cities will pay hundreds of dollars a year more for gas as prices rise, a report from the Grattan Institute says.

Average households in most major cities can expect gas bills to soar by hundreds of dollars a year as prices surge amid an emerging export industry, according to a report from the Grattan Institute.

The think-tank’s energy program director, Tony Wood, argues the emergence of a Liquefied Natural Gas export industry over the next five years, worth about $60 billion a year, will actually push prices up as Australians are forced to compete in the international market for supplies.

Australia will also struggle to meet its 2020 emissions reduction target, Mr Wood warns, as more coal is used for electricity generation in the face of rising gas prices.

In Melbourne, where 90 per cent of homes use gas for all their cooking, hot water and heating, an average bill could rise be as much as $435 a year, he said.

High gas users in Sydney will face an increase of about $225, while high users in Adelaide will pay an extra $200 a year. However, people in Brisbane, where gas consumption is low, would not be hit so hard.

“Gas producers have been building Liquefied Natural Gas facilities, mostly in Queensland, since 2010, and will start exporting as early as this year,” the report says.

“By 2018 east coast gas, added to growing Western Australian supplies, could create the world’s biggest gas export industry, worth $60 billion a year.”

“The downside is that domestic gas prices will increase to compete with the higher prices that other countries are prepared to pay for our gas.”

But Mr Wood says governments should resist pressure to introduce subsidies or the like to protect Australian industry and consumers.

“Reserving or subsidising gas for domestic use will add more costs than benefits and do nothing to increase supply. And in the long run, protection harms everyone,” he said.

The report says that for low users of gas – those using a gas cook-top or small-capacity gas hot water system – the increase to an average bill would be less than $50 per year.