Experts have called the impending gas crisis in Australia the result of a perfect storm; weather problems in key energy locations, a history of previous government inaction, and a geopolitical situation in Ukraine which has led to a gas shortage and increase in costs.
AEMO has administered price caps of $40GJ in the Sydney and Brisbane short-term trading markets and will remain until 7 June 2022.
Victoria’s gas market also remains capped at $40GJ after reaching a cumulative high price threshold on 30 May.
These price jumps are an increase of 300 per cent, according to Qenos Chief Executive, Steve Bell.
Significant flooding has flooded important coal mines and restricted work.
New Federal Energy Minister won’t “shy away from hard decisions”
Federal Energy Minister, Chris Bowen, recently delivered his first major press conference on the impending gas crisis, just days after being sworn into office.
Mr Bowen said he and his department were briefed by AEMO on the current situation, stating that he had spoken to all the energy ministers across the Australian states and territories.
Action will be taken according to expert advice and collaboration and not “knee-jerk reactions”, Mr Bowen said, but it will take time to implement the necessary actions.
“This government will take action when necessary and appropriately. We will do so based on expert advice. We will do so cooperatively with our state and territory colleagues,” Mr Bowen said.
“We will do what is necessary and we won’t shy away from hard decisions. But those decisions will be based on evidence, good policy, not on partisan politics, bickering, climate wars and culture wars.”
Mr Bowen refuted comments regarding the speed of action in the Federal Government, relaying the “denial and delay” of the previous Coalition Federal Government and significant numbers of energy policies left over, leaving the current government ill-prepared.
“This is a government which the former government promised a gas-fired recovery and left us a gas bin fire for the new government to deal with,” Mr Bowen said.
“The previous government did not do the work necessary to increase renewables, to increase storage. If we had more storage and more renewables and better transmission, we would be much better placed to deal with the current challenges.”
Mr Bowen said meetings with the state’s energy ministers and the AEMO and Australian Energy Regulator (AER) will continue to happen as actions and updates come forward.
AEMO: supplies tight but sufficient
The AEMO said that based on current availability forecasts, there is sufficient electricity supply to meet forecast demand in the National Electricity Market (NEM), but that they will continue to update the NEM forecasts as conditions change.
The AEMO said that supplies remain tight, with high gas demand driven by heating needs with colder weather and for power generation.
With major damage and halts to Queensland energy mines, the AEMO activated the Gas Supply Guarantee mechanism.
Mr Bowen said the AEMO had advised the implementation of the Gas Supply Guarantee mechanism is already showing some improvement in gas supply, and will continue to do so for the southeastern states over coming days.
The ‘gas-trigger’
Discussions of the gas-trigger have led to conflicting reports on appropriate action.
The gas trigger, or the Australian domestic gas security mechanism (ADGSM) allows the Federal Government to impose LNG export restrictions.
Mr Bowen has said that whilst the Resource Minister has the trigger available, it cannot come into force until 1 January 2023 and that there has been “a misunderstanding of how the mechanism works or would work”.
The gas trigger is a “supply trigger” not a “price trigger”, according to Mr Bowen.
Global cost for Australian energy
Director of the Monash Energy Institute, Professor Ariel Liebman, said the crisis is a “policy failure a long time in the making” and the remedy will be difficult to fix quickly.
“The best immediate solution would be to pull the so-called ‘gas trigger’ to requisition supplies of gas intended for export,” Mr Liebman said.
“We have huge amounts of coal seam gas which was allowed to be exported with none reserved for Australia which has ultimately led to a situation where Australians are paying for gas prices at global parity.”
Mr Liebman explained that gas prices are “hyper sensitive” to external supply changes such as the Russia-Ukraine conflict. The conflict, alongside a cold snap weather event and “significant electricity outages combined into a perfect storm”.
Mr Liebman also discussed the consequences of a lack of intervention by governments.
“This would all have been preventable if successive governments had paid proper attention to rigorous monitoring and regulation of all the key energy markets in Australia,” Mr Liebman said.
Mr Bowen said it is important that Australians know that the new Federal Government has confidence in the regulators, in AEMO, and in the AER to take the necessary action and to advise the government accordingly.
“They have our confidence. They are world-class regulators, and Australians should and can have confidence in them.”
Dr Nicola Willand, Senior Lecturer in the School or Property, Construction and Project Management at RMIT University, said, “The gas crisis will have uneven consequences on the health and wellbeing of Australians.
“Low-income households and renters are likely to be hit hardest. Low-income households may already feel the impact of increased housing and living costs and may need to choose between meat and heat.
“Renters will be particularly disadvantaged: they tend to live in less energy-efficient homes than owner-occupiers, are often on a low income, have little choice in suitable properties and lack the agency to retrofit their homes.
“Fear of rising gas prices is also likely to lead to reduced heating in many households. Cold homes can lead to mould, respiratory and cardiovascular illnesses, an increase in infectious diseases and avoidable winter deaths.
“Bill anxiety can also cause mental health problems, and people may stop inviting friends over to their house, which can lead to social isolation.
“One of the underlying problems for the crisis is the poor quality of our housing stock. Well-designed, energy-efficient homes are resilient to energy price fluctuations. Instead, Australian homes are notoriously leaky, uninsulated and have been likened to ‘glorified tents’.”
Dr Willand said while there are some energy efficiency requirements for new housing, there are no standards for the quality of existing homes.
“Investments in home insulation and efficient appliances are needed urgently to reduce residential energy demand and increase energy security. Insulation is one of the most cost-effective retrofit measures, however, insulation is rarely subsidised,” Dr Willand said.
“Other long-term initiatives may include minimum energy efficiency standards for rental homes, targeted retrofit subsidies and access to solar power for vulnerable households, social housing retrofits, more effective energy concessions and better information tools, such as disclosure of home energy ratings for existing dwellings.
“To address this immediate crisis, everyone can and should play a role. We can ensure energy efficiency in our own rental properties.
“We can watch out for signs of energy hardship among family members and friends, for example cold rooms and mould behind curtains.
“We can help family members, friends and neighbours with simple, inexpensive retrofits like draught proofing strips and curtains with pelmets.
“We can help people with limited internet skills or problems with vision or hearing to negotiate the best energy contract – one phone call can save hundreds of dollars.
“And we can provide shelter and warm food during cold spells.”
