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More gas investment needed past 2027 - AEMO

Image shows an un-named LNG plant

Photo by Bloomberg

16th March 2023

By: Esmarie Iannucci

Creamer Media Senior Deputy Editor: Australasia

     

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PERTH (miningweekly.com) – The Australian Energy Market Operator (AEMO) has urged for more investment in gas production to meet energy demands post 2027, and has warned of potential supply constraints this winter in the southern states of Australia, under certain conditions.

In its 2023 Gas Statement of Opportunities (GSOO) report for central and eastern Australia, AEMO noted that extreme weather conditions across the southern region, the availability of gas storage and potential delays in infrastructure developments to reduce transmission constraints, could all impact gas supply this winter.

AEMO CEO Daniel Westerman said the short-term gas shortfall risks and long-term supply gaps, owing to declining production in southern Australia, continue from the 2022 GSOO.

“The risk of gas shortfalls each year from winter 2023 to 2026 in all southern jurisdictions remains under extreme weather conditions and periods of high gas-powered electricity generation, with those risks further exacerbated if gas storage levels are insufficient,” Westerman said.

“Overall, the gas supply adequacy challenges reported in the 2022 GSOO remain, driven by the continued decline of production in the Gippsland region, along with pipeline capacity limitations, including capacity to transport gas to the southern states.

“While production capacity commitments have increased for 2023 compared to the 2022 GSOO and several key infrastructure projects are on track for delivery, there is forecast to be a 16% reduction in production capacity this winter compared to 2022 in Victoria, which increases supply pressure in the southern regions,” he said.

Looking past 2027, the GSOO found that without additional commitments to expand domestic supply, or alternative developments such as hydrogen or biomethane that may offset natural gas demand, gas contracted for export by Queensland liquefied natural gas (LNG) producers could instead be needed to maintain domestic gas adequacy.

“Investment uncertainty exists regarding the development of LNG import terminals, including the Port Kembla Energy Terminal project. If an import terminal was developed in the south, including appropriate location and operation of floating storage and regasification units, imports may delay supply gaps,” the report read.

“The scale of forecast gas consumption varies across AEMO’s scenarios. As policy and consumer preferences to switch to alternate energy sources are unclear, so the preferred timing, type and size of gas supply and any supporting infrastructure required is uncertain. All future scenarios, however, forecast the long-term need for additional supply.”

Westerman said that in order to minimise shortfall risks, committed infrastructure and supply projects must be completed on time, while demand-side solutions, additional gas storage and pipeline development, and LNG import terminals could potentially play a role.

“Investments are needed in the near term to ensure operational solutions from 2027, despite falling gas consumption.

“Existing instruments, such as the heads of agreement with LNG exporters, which includes the Gas Supply Guarantee, to offer additional gas into the east coast domestic market in 2023 will help in managing supply adequacy,” he said.

The Australian Petroleum Production and Exploration Association (Appea) on Thursday called on the federal and state governments to outline plans to bring on new gas supply, in the wake of the AEMO report.

Appea CEO Samantha McCulloch said the GSOO and the Victorian Gas Planning Report have put the Commonwealth and the Victorian and New South Wales governments on notice about the energy security risk for millions of homes and businesses on the eastern seaboard.

“Governments have received warning after warning from independent authorities and industry stakeholders about the need for investment in new supply,” McCulloch said.

“AEMO makes it clear that the root cause of gas market shortfalls is inadequate supply and infrastructure. Ongoing market intervention and price regulation, permitting delays, and state-based barriers to new gas development are exacerbating the risk of shortfalls.

“We need a clear strategy from governments to promote new supply to avoid shortfalls and put downward pressure on prices rather than ad hoc interventions that do the opposite and undermine investment confidence.

“Millions of homes and businesses in Victoria and New South Wales are already paying an extra $2/GJ whenever gas is imported from Queensland, and these new reports are the latest to warn of shortfall risks that would risk energy security and put further upward pressure on prices if new gas supply is not secured,” McCulloch said.

Edited by Creamer Media Reporter

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