A new Australian Energy Market Operator (AEMO) report has found that an expected decline in gas production could create a gas-powered electricity generation (GPG) shortfall for New South Wales, Victoria and South Australia from 2018-19.
AEMO’s 2017 Gas Statement of Opportunities (GSOO) report, intended to assess the adequacy of gas infrastructure, reserves and resources to meet demand in eastern and south-eastern Australia to 2036, outlines that gas producers have forecast annual production to decline by 122 PJ, from 600 PJ in 2017 to 478 PJ in 2021.
Based on this information, AEMO advises additional production will be required to meet the needs for GPG and residential, commercial and industrial gas consumers.
AEMO Chief Operating Officer, Mike Cleary, said, “At a time when 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.”
Mr Cleary said this tightening of the domestic gas market would have flow-on effects to the electricity sector unless there was an increase in gas supplies and development.
Without this development to support GPG, modelling suggests average electricity supply shortfalls of between approximately 80GWh and 363GWh may be experienced in 2018-19 and 2020-21.
The scale of these shortfalls would breach the reliability standard which aims to supply at least 99.998 per cent of electricity demand.
Alternatively, if GPG gas requirements are supplied, then gas shortfalls of between 10 petajoules per annum (PJ/a) and 54 PJ/a 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,” Mr Cleary said.
In the short term, AEMO has identified a range of potential industry responses that could mitigate both electricity and gas supply shortfalls. However it notes that these responses rely on appropriate market signals, and may be impacted 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,” Mr Cleary 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.”
The long-term outlook identifies that early investment in exploration and development programs will be needed to bring uncertain and undiscovered resources to market in time to meet forecast increases in demand for gas.
Up to 5500PJ of additional production will need to be developed to meet projected demand post 2030, although AEMO acknowledges that climate change policy, and emerging new technologies will influence future demand for GPG and the energy supply mix.
The 2017 GSOO uses demand forecast scenarios from the 2016 National Gas Forecast Report and forecasts production based on producer guidance, wholesale gas contract information, historical actuals from AEMO’s Gas Bulletin Board and other publically available information.
The report is based on information available to AEMO as of 31 December 2016.
In an address to the Australian Financial Review Business Summit, Prime Minister Malcolm Turnbull called on the states to lift their restrictions on gas exploration and development.
“The report released overnight by the market operator about the potential shortfalls in gas and the pressure that may place on the electricity market, is very concerning,” Mr Turnbull said.
“That’s why I’ll be urgently calling the chief executives of the east coast gas companies together, to explain how they plan on addressing this threat to their customers.”
Energy Networks Australia CEO, John Bradley, said state government intervention was undermining Australia’s energy security and carbon abatement goals by reducing the amount of gas available for use in Australia.
“The Victorian Government has extended bans on gas exploration and development in the same week the independent market operator warns of gas shortages and blackouts for customers,” Mr Bradley said.
“Some Australian governments are sleeping through their wake up call on energy security.”
Mr Bradley said extended bans in Victoria were particularly concerning given gas was vital to Victorian households, manufacturers and power system security.
“Victoria has Australia’s largest manufacturing sector dependent on gas, and almost two million households relying on natural gas for hot water, heating and cooking.
“Victoria is also about to lose 14 per cent of its firm power generation capacity when the coal-fired Hazelwood Power Plant shuts down.”
Mr Bradley said AEMO’s report highlighted the need for governments to provide an integrated energy plan, given secure electricity was dependent on secure gas supplies.
“Gas is a low emission fuel that can help Australia achieve its carbon abatement targets but government intervention is damaging its potential,” Mr Bradley said.
“Gas used in efficient gas-fired power generation has less than half the emissions of current coal fired power generation.
“Without a national, technology neutral carbon policy and with continued state bans on gas, Australian customers face a less reliable, higher cost and higher emissions future.”
Mr Bradley urged governments to adopt an evidence-based national approach to gas exploration and production, as recommended by the Academy of Technological Science and Engineering.
“Governments should listen to the science and act on the evidence to increase supply and put downward pressure on gas prices.”
The Australian Petroleum Production and Exploration Association (APPEA) Chief Executive, Dr Malcolm Roberts, said the AEMO report 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,” Dr Roberts said.
“AEMO, the ACCC, 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.
“Only this week, the Victorian Parliament passed legislation that effectively bans all onshore gas development in that state. Clearly, the Andrews Government cares more about Greens preferences than it does about jobs and cost of living pressures on families.
“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 Lakes Oil and Gippsland projects in Victoria – have been either blocked, withdrawn or delayed.
“Any of 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.”
Dr 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 per cent 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,” Dr Roberts said.
South Australian Minister for Mineral Resources, Tom Koutsantonis, said the report showed that state opposition should immediately abandon its promise to ban unconventional gas developments in the South East.
In November 2016 Liberal Leader Steven Marshall announced a 10-year moratorium on unconventional gas in the South East.
Mr Koutsantonis said, “We need more gas supply in Australia, not less. If the Liberals the next election and impose their gas ban it will be devastating for power prices and for industries that rely on gas to operate.
“Not listening to South Australian businesses is one thing, but ignoring warnings from the market operator puts our future power supply at risk.
“The state government is partnering with gas companies to extract more gas and supply it to local generators in order to put downward pressure on prices.”
The Victorian Gas Planning Report has also been released and provides annual supply (available and prospective gas) and consumption forecasts for Victoria for the next five years.
The report projects potential gas supply shortfalls for Victoria over the next five years should market participants not carefully manage their gas portfolio, including storage balances. It has identified challenges in filling storage as a threat to system security.