Gas development is urgently needed to meet future energy demand

A projected decline in gas production could result in a shortfall of gas-powered electricity generation (GPG) impacting New South Wales, Victoria and South Australia from the summer of 2018-19, according to the Australian Energy Market Operator.

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, has outlined that gas producers have forecast annual production to decline by 122PJ, from 600PJ in 2017 to 478PJ in 2021.

AEMO has concluded that additional production will be required to meet the needs for GPG and residential, commercial and industrial gas consumers.

“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,” AEMO chief operating officer Mike Cleary said.

“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.”

According to the report, tightening of the domestic gas market will have a flow-on effect to the electricity sector, unless there is an increase in gas supplies and development.

Without this development to support GPG, modelling has suggested 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 54PJ/a are projected in the residential, commercial, and/or industrial sectors from 2019 to 2024 in New South Wales, Victoria and South Australia.

In the short term, AEMO has identified a range of potential industry responses that could mitigate both electricity and gas supply shortfalls.

“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 AEMO report coincided with the release of the Victorian Gas Planning Report which has provided annual supply (available and prospective gas) and consumption forecasts for Victoria for the next five years.

The report projected potential gas supply shortfalls for Victoria over the next five years, should market participants not carefully manage their gas portfolio, including storage balances.