Consumers and businesses on Australia’s east coast are paying significantly more for gas than international customers buying its liquified natural gas (LNG) exports, the competition watchdog has found.

An interim report by the Australian Competition and Consumer Commission (ACCC) found domestic gas users were offered prices of between $8 to $11 a gigajoule in late 2019 and early this year.

By comparison, LNG exporters were selling to their north Asian customers for less than $6 a gigajoule by early 2020.

The LNG netback price, a measure of what a gas supplier would expect to receive, has been below $5.50 since May.

The ACCC chair, Rod Sims, said he was concerned about a widening gap between domestic and export parity prices. It would have an “inevitable impact” on Australia’s industrial sector during a difficult economic period, he said.

“I am yet to hear a compelling reason from LNG producers as to why domestic users are paying substantially higher prices than buyers in international markets,” Sims said in a statement.

“When we have lower gas prices around the world, and the Australian market linked to world gas markets, it is vital that Australian gas users get the benefit.”

International oil and gas prices have crashed in recent months due to the Covid-19 shutdown, Saudi Arabia and Russia flooding the global oil market and, according to some analysts, investors’ increasing wariness about the financial risk of backing fossil fuel assets as the world looks to cut greenhouse gas emissions.

Sims said the impact of Covid-19 and the collapse in oil prices were being felt at all levels of the gas supply chain. “They have highlighted key areas of dysfunction in the market,” he said.

The Morrison government and its handpicked National Covid Coordinating Commission have embraced the falling price as an opportunity and backed public support for gas infrastructure. The commission’s chair, Nev Power, has played down suggestions of a green recovery from the pandemic built on clean energy.

A leaked draft report by the commission’s manufacturing taskforce recommended the government underwrite a massive expansion of the domestic gas industry – including government help to open new fields and build hundreds of kilometres of pipelines – that could reduce the domestic price to about $6 a gigajoule, with a goal of $4. Analysts have dismissed this as unrealistic.

New South Wales’ independent planning commission is due to make a decision on a controversial $3.6bn gas project in Narrabri, in north-west NSW, by 30 September after an extension last week. An inquiry into the proposal by energy company Santos heard conflicting evidence on whether the development would reduce domestic gas prices.

The director of the NSW Department of Planning, Industry and the Environment, David Kitto, told the inquiry the project was relatively small and the department had not claimed it would reduce gas prices. The company claims it will, and submitted new modelling last week assuming a production cost of $6.40 a gigajoule. Its earlier modelling had not assumed gas prices would come down.

The ACCC found Australia’s east coast was expected to have enough gas to meet demand in 2021, with LNG producers having a surplus, but there was a risk of a shortfall in the southern states in the medium term.

Three government ministers issued a statement in response to the report, saying it confirmed gas prices had continued to fall. They said there was evidence of further price falls to less than $7 a gigajoule in Queensland since February.

The energy and emissions reduction minister, Angus Taylor, said the government expected gas producers to reflect international export prices in what it charged Australians. “We expect these price reductions to be passed on fairly.”

Taylor said gas would be central to Australia’s economic recovery from the pandemic. “Australia’s competitive advantage has always been based on cheap energy, particularly for the manufacturing sector,” he said.

The minister for resources, Keith Pitt, said the government would continue to call on state and territories to lift bands on gas exploration. He said the gas market had “continued to perform comparatively well” despite the impact of coronavirus.

Labor’s climate change and energy spokesman, Mark Butler, said Australians continued to be charged two to three times the historic gas price, and accused the government of promising a “gas-led” recovery while the country was facing an affordability and supply crisis.

“This is just another example of Scott Morrison’s marketing spin trumping reality,” he said.

Gas is often described as having half the emissions of coal when extracted and burned, but recent studies have suggested it could be more.