Gas will continue to play an important role in Australia’s journey to net zero – but how will gas supply and consumption change in the transition to clean energy?
With the expected dependency and demand for gas in Australia’s energy transition, it’s important to understand and acknowledge the potential shortfalls of an energy source that remains essential yet may eventually be phased out.
Every year, the Australian Energy Market Operator (AEMO) releases its Gas Statement of Opportunities (GSOO) report,
Natural gas-fired electricity power station in Port Adelaide, Torrens Island, South Australia. Image: myphotobank.com.au/Shutterstock.com
which uses information from gas industry participants to forecast whether gas supplies in central and eastern Australia will sufficiently meet the changing energy needs of households and businesses between now and 2043.
The 2024 GSOO was released in March 2024 and continues to predict shortfall risks on extreme peak demand days from 2025, with the potential for small seasonal supply gaps from 2026, expected to be experienced primarily in southern Australia.
Downward trend in gas consumption
The latest instalment of the report notes that gas consumption has declined significantly across all sectors since the publication of 2023’s GSOO, with emerging indications of fuel-switching from gas to electricity. This has coincided with noticeably higher retail gas prices than previous years, in addition to record-breaking warm winter temperatures.
Gas consumption for commercial, residential and industrial users is forecast to decline over the outlook period to 2043, however, southern gas production is expected to decline at a much faster rate of an almost 40 per cent decrease over the next five years, driven by the rapidly depleting gas fields in Victoria’s Gippsland region.
The GSOO contends that the projected gap in supply and demand highlights the urgent need for new investment to ensure that gas supply from 2028 can keep pace with demand from homes and businesses, and for gas-powered energy generation.
Inadequacy risks
A critical undertaking of the report was assessing the risks associated with gas inadequacies over the short, medium and long term, and there were five risks of particular concern identified.
1. Shortfall during peak demand
From 2025, the risks of shortfalls on certain days in winter are forecast under extreme peak demand conditions in southern Australia, if extreme weather conditions drive high demand for heating, coincident with high demand for gas powered electricity generation (GPG). The report posits that deep and shallow gas storages remain vital to peak demands being met whilst simultaneously providing seasonal flexibility. The ongoing availability of stored gas ahead of winter conditions continues to be important to mitigate adequacy risks.
2. Meeting domestic requirements
Producers in Northern Australia will need to deliver anticipated supplies and from 2026, the GSOO maintains that investment in supply that is currently uncertain will be required to ensure domestic requirements and export positions are met.
3. Seasonal supply gaps
The report predicts that there is the potential for small seasonal supply gaps in winter in southern Australia in both 2026 and 2027 under sustained high gas usage conditions.
4. Annual supply gaps
The forecast annual supply gaps are expected to increase in magnitude from 2028 as southern production declines. This will result in the development of a more structural need for anticipated and currently uncertain new supply, despite the decline in residential, commercial and industrial gas consumption across the nation.
5. GPG through the retirement of coal generators
The forecast level of GPG is expected to increase from the mid-2030s as coal generators continue to retire through Australia’s energy transition – as outlined in the Draft 2024 Integrated System Plan (ISP). The GSOO recommends further consideration of these forecasts, along with market and policy settings to ensure demand is able to be met.
Solutions considered by industry
The GSOO outlines various solutions that are being considered by industry to address gas inadequacy risks over the coming years and suggests that a portfolio of solutions will most likely be required, including:
- Upgrades to and the expansion of existing pipelines that may delay annual gaps to 2029, but will require additional solutions to increase supply and provide peak day flexibility.
- Uncertain 2C southern supply and renewable gas projects that may delay annual supply gaps to 2033 and help mitigate peak day shortfall risks.
- LNG terminal(s) that may require associated pipeline infrastructure depending on the terminal may delay supply gaps until 2033 and help mitigate peak day shortfall risks, depending on the availability of LNG cargoes.
- Increased storage to cater for peak seasonal loads is likely a good complement to all other developments. Demand response mechanisms may also mitigate peak supply shortfall risks.
Supply challenges
As demand changes, the GSOO summarises three key supply challenges and potential solutions.
Annual supply gaps
To address annual supply gaps and provide sufficient volumes of gas both domestically and for export, new supply must be developed.
Options for southern supply include LNG import terminals, increased southern supply, infrastructure to transport gas produced in northern regions, or renewable gas projects. Northern supply options include expansions or new supply from fields in the Surat and Bowen basins, or from new basins such as the Beetaloo sub-basin, the South Galilee or North Bowen basins, or from renewable gas projects.
Seasonal supply gaps
New flexible capacity to support increased southern winter demand for heating and GPG are required to address seasonal supply gaps. Options to address this includes:
- New deep storage(s) in the south
- Upgrades to existing southern storage(s)
- Import termina(s) operated during winter months
- Increased north to south pipeline capacity
Daily or multi-day peak day shortfalls
The GSOO notes that daily peaks in demand, which is most prominent in southern regions, will require increased injection capacity.
Supply to southern customers may be improved with the provision of a new southern supply and/or increased capacity in the north to south pipeline capacity. An effective pipeline solution would require progressively higher northern supply.
Depending on the capacity for injection from either solution and the magnitude of gas demand peaks, southern storages may still be required to adequately resolve peak day shortfall risks. Thus, options include:
- New or expanded existing storage(s), including shallow and deep facilities
- Onsite storage at gas generators to reduce withdrawal rates from the gas system at peak times
- Pipeline augmentations, including reversals of existing infrastructure to increase flexibility of transportation
- Import terminal(s) to provide both additional supply and injection capacity
- Demand-side management mechanisms to reduce peak day demand
Potential supply, storage and transportation projects
The 2024 GSOO also outlines a number of uncertain projects that may have an impact on the risks of gas inadequacy identified across the GSOO horizon, including supply, storage and transportation options.
Northern supply
The most substantial reserves and resources are found in the northern regions. New northern supply from projects currently classified as uncertain would be required in all options assessed by AEMO, and may include expansions within existing basins, or developments in new basins.
A gas fractionation plant, Australia. Industrial processing plant. Fossil Fuel, Environmental Challenge. Image: Jason Benz Bennee/Shutterstock.com
The level of regional infrastructure investment required would depend on the proximity of the developments to existing processing and transportation infrastructure. The capacity to bring this gas south would also become more constrained by the capacity available along existing pipeline corridors.
North to south pipeline capacity
Increased north to south pipeline capacity provides southern demand centres with improved access to northern gas production, including existing, committed, anticipated and as yet undeveloped uncertain production.\
Additional pipeline capacity would provide improved capability to transport gas south throughout the year and may be complemented by reversals to the Port Campbell to Adelaide and Eastern Gas Pipelines, to provide increased peak day transportation capacity to the major load centre of Victoria.
Southern supply and renewable gas opportunities
The 2024 GSOO includes current and future supply from a small number of existing or committed renewable gas projects and opportunities for renewable gas are likely to rise in future, which may stimulate more identified resources.
State governments have developed hydrogen strategies and plans that are designed to develop the industry and encourage further investment in commercialisation.
LNG import terminals
LNG import terminal projects are at various stages of development close to southern demand centres. LNG import terminals would provide significant peak day injection capability and could be operated seasonally during winter months when supply would be more available due to the northern hemisphere summer. During summer months when there is less demand for imported LNG, floating storage and regasification units (FSRU) could either continue to supply domestic
consumers or be relocated to service alternative worldwide locations.
Import terminals would rely on existing or new pipeline infrastructure to enable delivery of supply and injection capacity to domestic consumers, which would vary for each proposed development.
Storage
Gas storage capacity requirements are uncertain in the longer term, but AEMO’s 2024 Draft ISP forecasts that GPG will complement renewable generation sources and electricity storages to support electricity consumers during peak demand periods and when renewable resources are less available. This may lead to potentially significant peaks in gas demand, which may increase the need for some form of additional gas storage capacity.
Pipelines (via linepack) and LNG import terminals (via the FSRU) provide storage capacity that can improve operational flexibility but do not represent a firm storage solution comparable to dedicated deep or shallow storage solutions (including on- site storage options at gas generators).
Conclusion
Gas consumption is a necessary part of the energy transition, especially where it is used for electricity generation.
Although the scale of gas consumption throughout the energy transition remains unknown – particularly when it comes to gas usage for electricity generation – there are supply challenges and a significant risk of gas inadequacy across the GSOO horizon.
The GSOO contends that all scenarios investigated highlight the urgent need for new investments in gas to maintain a sufficient supply now and into the future as gas supports Australia through its stride towards net zero.
To read the full GSOO report, visit aemo.com.au/energy-systems/gas/gas-forecasting-and-planning/gas-statement-of-opportunities-gsoo
Featured image: Ian Geraint Jones/Shutterstock.com
