AEMO has released its latest gas market outlook for Australia’s east coast, which has forecast a gap in supply for the southern states from 2028, due to production from the Bass Strait declining faster than demand. 

The 2024 Gas Statement of Opportunities (GSOO) report signals that new investment is urgently needed if gas supply from 2028 is to keep up with demand from homes and businesses, and for gas-powered electricity generation.

It also highlights risks of peak-day shortfalls on some days under extreme winter conditions from 2025 and the potential for small seasonal supply gaps from 2026 in southern states.

Incorporating input from gas producers and operators of gas processing facilities, pipelines and storage facilities, the 2024 GSOO report is developed to support investment opportunities in the east coast gas system.

Complementing the GSOO is AEMO’s 2024 Victorian Gas Planning Report (VGPR) update, which provides a five-year assessment of the supply demand balance in Victoria’s Declared Transmission System.

Similar to the 2023 GSOO, domestic gas consumption from residential, commercial and industrial consumers is again forecast to decline during the next 20 years. This decline is forecast to be driven by increased electrification as the economy transitions to meet net zero emissions goals.

AEMO CEO, Daniel Westerman, said that since the 2023 GSOO, a range of storage and pipeline projects have been completed, improving gas supplies to southern states that will help offset declining production from Bass Strait gas fields.

“However, gas production is forecast to fall faster than demand in the south, driven by declining production from Bass Strait, which has historically supplied around two-thirds of southern Australia’s gas,” Mr Westerman said. 

“While the report identifies the need to deliver new infrastructure by 2026, running gas-powered generators on liquid fuels could provide temporary relief during periods of extremely high gas demand.

“From 2028, supply gaps will increase in size as Bass Strait production falls significantly.” 

In the northern regions, where the majority of gas is produced for export, investment is also needed from 2026 to meet both export and domestic demand.

In the 2024 GSOO, AEMO has assessed the impact of a number of currently proposed supply, transportation and storage options in reducing the risk of peak day shortfall and annual supply gaps.

“For the first time, we’ve assessed a range of investment options that include pipeline upgrades, new domestic supply including renewable gases, and LNG import terminals,” Mr Westerman said.

“While each individual investment could delay shortfalls for a number of years, a combination of these options will be needed to fully address gas supply issues.” 

Whilst more supply will be needed to meet demand in the coming decades, AEMO has some powers to help manage potential operational risks.

To help manage storage levels, an arrangement in place since 2023 requires AEMO to contract available capacity at the Dandenong LNG storage facility in accordance with the Domestic Wholesale Gas Market interim LNG storage measures rule change, which is effective until the end of 2025.

Alongside continued investment, Australia’s energy ministers extended AEMO’s function in May 2023 to help manage gas reliability and shortfall risks on the east coast. Proposed stage 2 measures were agreed by energy ministers in December 2023, which seek to establish a fit-for-purpose Reliability and Supply Adequacy Framework. These measures will take time to implement, including changes to the National Gas Rules, industry consultation, procedures and system development.

The 2024 GSOO reaffirms the important role gas-powered electricity generation will play in reducing emissions and maintaining electricity reliability and security as the power system transitions from coal to intermittent renewable generation and an increase in electricity demand through the electrification of some gas use.

“Flexible gas-powered electricity generation is an essential component of the energy mix into the future,” Mr Westerman said.

“Gas, along with batteries and pumped hydro, will enable higher rates of renewables and support electricity reliability as Australia’s coal-fired power stations retire.” 

Industry response

Australian Pipeline and Gas Association (APGA) CEO, Steve Davies, said that gas infrastructure companies have invested to help solve this crisis without long-term contracts that provide certainty. 

“Governments must act to de-risk gas investments, which are essential if we are to close coal power stations and support intermittent renewables during the energy transition. For gas-powered generation, this means inclusion in the Capacity Investment Scheme,” Mr Davies said. 

The gas infrastructure sector continues to work with the Federal Government on its upcoming Future Gas Strategy to address these challenges and help ensure affordable, reliable gas for homes and businesses.

Mr Davies said that this is the bleakest short-term gas supply outlook modelled by AEMO and solutions are needed quickly to ensure there isn’t economic destruction of the more than $250 billion of enabled commercial activity that natural gas unlocks in Victoria, Queensland, and New South Wales alone.

“We need a long-term structural fix providing significant new supply sources covering natural gas today and renewable gases tomorrow,” Mr Davies said.

“AEMO recognises that gas demand will remain strong well into the 2040s, and Australia cannot afford to destroy its own competitive advantage by making affordable energy prohibitively expensive.”

“If we don’t solve this structural supply issue fast, the consequences will be lower economic output, higher energy costs for households and industry, and ultimately, the loss of Australian jobs.”

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