PERTH (miningweekly.com) – Australian Prime Minster Malcolm Turnbull on Thursday said warnings of potential shortfalls in gas were “very concerning”, and called on the CEOs of east coast gas companies to address the threat to customers.

Turnbull’s comments come after the Australian Energy Market Operator (AEMO) released a report stating that a projected decline in gas production could result in a shortfall of gas-powered electricity generation (GPG) that will impact New South Wales, Victoria and South Australia, from the summer of 2018/19.

The AEMO’s ‘2017 Gas Statement of Opportunities’ report (GSOO) outlines that gas producers are expecting annual production to decline by 122 PJ, from 600 PJ in 2017 to 478 PJ in 2021.

Based on this information, AEMO advises that additional production will be required to meet the needs for GPG and residential, commercial and industrial gas consumers.

“At a time when liquefied natural gas (LNG) export is dominating demand and supply of gas in eastern states, strategic national planning of gas development has never been more critical for maintaining domestic energy supply adequacy across both gas and electricity sectors,” said AEMO COO Mike Cleary.

He noted that this tightening of the domestic gas market will have flow-on effects to the electricity sector unless there is an increase in gas supplies and development.

“Without this development to support GPG, modelling suggests average electricity supply shortfalls of between 80 GWh and 363 GWh may be experienced from 2018/19 to 2020/21. The scale of these shortfalls would breach the reliability standard which aims to supply at least 99.998% of electricity demand.”

Alternatively, Cleary noted that, if GPG gas requirements are supplied, then gas shortfalls of between 10 PJ/y and 54 PJ/y are projected in the residential, commercial and/or industrial sectors from 2019 to 2024 in New South Wales, Victoria and South Australia.

“The 2017 GSOO highlights the increasing interdependencies between gas and electricity, and supply and demand, and the need for the Australian energy industry to have a holistic ‘single energy view’ to ensure long-term planning is carried out in the interests of consumers.

“Gas and electricity markets can no longer be viewed in isolation, as the overall convergence of energy markets in eastern and south-eastern Australia demands a single energy view from a national perspective. It requires holistic planning across the entire supply chain to enable investment decisions to be made in the long-term interests of consumers," said Cleary.

In the short term, AEMO has identified a range of potential industry responses that could mitigate both electricity and gas supply shortfalls; however, Cleary noted that these responses relied on appropriate market signals, and may be impacted on by considerations such as the retirement of coal-fired generators, and the direction of energy policy such as the existing moratoria on various gas developments across eastern Australia.

“Energy supply shortfalls could be mitigated in the short term by an increase in coal-fired generation and renewable energy output, combined with an uptake in technologies such as battery storage, together with increased gas production and the possibility of LNG exporters redirecting a small portion of their gas production to the domestic market,” he said.

“Gas producers have told us that there is potential scope to increase production from existing fields if incentivised, although the size of the increase is unknown and new fields may also need to be developed to meet projected demand," said Cleary.

The long-term outlook identifies that early investment in exploration and development programmes will be needed to bring uncertain and undiscovered resources to market in time to meet forecast increases in demand for gas.

Up to 5 500 PJ of additional production will need to be developed to meet projected demand post 2030, although the AEMO acknowledged that climate change policy, and emerging new technologies will influence future demand for GPG and the energy supply mix.

The Australian Petroleum Production and Exploration Association (Appea) said on Thursday that the AEMO’s warning is the consequence of many years of policy failure by successive state governments in Victoria and New South Wales.

Appea CEO Dr Malcolm Roberts said the GSOO was the latest in a long list of credible warnings that eastern Australia was racing towards a gas supply cliff.

“For years now, politicians in Victoria and New South Wales have wilfully ignored these warnings,” Roberts said.

“AEMO, the Australian Consumer and Competition Commission, Appea, gas producers and their customers have all been demanding urgent action to increase gas supply.

“But the response has been policy indecision, restrictive regulations and politically motivated bans and moratoriums that have stymied exploration and development of local gas supplies.”

Roberts pointed to the Victorian Parliament’s decision this week to pass legislation effectively banning onshore gas development in that state.

“Clearly, the Victorian government cares more about Greens preferences than it does about jobs and cost of living pressures on families,” he said.

“Gas customers have watched with dismay as new projects – such as those proposed by Metgasco at Bentley, AGL at Gloucester and Santos at Narrabri in New South Wales, and the Lakes Oil and Gippsland projects in Victoria – have been either blocked, withdrawn or delayed.

“These projects would have added significantly to east coast gas supply. Fortunately, there is activity in other jurisdictions. Project Charlie and the Western Surat project in Queensland, the Sole project in Commonwealth waters offshore from Victoria and the Southern Cooper Basin gas project in South Australia are all moving forward.

“Several east coast gas producers have also confirmed as recently as today that they have available gas that they can and do sell into the domestic market.”

Roberts said onshore exploration was at its lowest level in more than three decades. Recent Australian Bureau of Statistics data showed onshore exploration expenditure falling by 64% in the past year.

“Australia has more than enough gas to meet its export and domestic needs. It just needs the political will to develop it,” he said.