Gas supplies tight heading into critical summer period, AEMO warns

Australia’s dependency on gas is growing due to limited storage capacity to back up renewables, but the energy market operator has warned supplies are tight going into a critical period.

Gas supplies will need to be carefully managed if the fuel source is needed for electricity generation over summer, the country’s energy market operator has warned.

The warning, from the Australian Energy Market Operator, underscores the precarious supply of gas across the east coast as traditional sources deplete at a time when Australia’s dependency on the fuel source is growing as the Albanese government moves to meet its transition goals and storage capacity struggles to keep pace.

Renewable energy is increasingly providing more electricity to Australia’s east coast. But during periods of unfavourable weather for zero emission generation, the region has to turn to using gas power generation to ensure grid stability and prevent future price rises.

But AEMO’s executive general manager of operations Michael Gatt has warned should this eventuate, gas supplies will need to be carefully managed, particularly in Victoria – Australia’s most gas dependent state.

“Gas supply levels need to be carefully managed if used to support peak electricity demand periods on the east coast, particularly in Victoria,” he said.

A coal fired powered station at Yallourn in Gippsland. Picture: Andrew Henshaw/NCA NewsWire

The warning comes as Australia’s east coast enters a critical period. Summer is one of two peak demand periods for electricity, as a spike in temperatures prompts increased demand for cooling.

Gas is primarily used as a so-called peaker, with power plants fired up during periods of unusually high demand or low supplies. But gas can be used for longer periods, particularly important should a coal power station suffer an unplanned outage.

Should such an event unhold, Australia’s electricity grid will be strained – stoking warnings of blackouts or future price increases.

Companies such as AGL Energy, Origin Energy and EnergyAustralia – which own much of the privately owned coal power stations across the country – have spent the last few months undertaking maintenance of their fleet to ensure reliability.

But many – predominantly those outside of Queensland – are ageing and reliability is waning – stoking concern within the country’s energy industry about a blackout in a critical period.

In the event of an unplanned outage, gas power generation will increase, but there is limited capacity to bolster supplies across the east coast as states move slowly to unlock new supplies amid environmental pressure.

Queensland is the exception and much of the gas needed in states like Victoria will need to flow south, but the critical pipeline run by APA Group runs almost daily above capacity – limiting the scope for more supplies to flow in the event that they are needed.

Such an event would be potentially catastrophic. AEMO would then have to step in with emergency backstop measures to ensure demand does not outstrip supply.

Moored LPG Supertanker in Dampier, Western Australia

The market operator last week was forced to step in and activate agreements with major users in NSW to temper electricity demand after an increase in temperatures coincided with a spate of planned and unplanned outages in the state.

NSW is already precariously placed with an AEMO report in August identifying so-called reliability gap– a reserve amount of electricity that the market operator has in place should demand spike beyond what is anticipated.

In response, the AEMO confirmed it is in talks with heavy users for long-term agreements that it could activate in times of tight supplies.

Even if, like in November, blackouts are avoided – wholesale electricity prices will rise. Households and businesses do not immediately fell increased wholesale electricity prices – the cost of producing electricity – though it will eventually flow through when the Australian Energy Regulator calculates the next annual tariffs – known as the default market offer. Not every household pays the figure, but it is a reference point used by energy companies when setting annual bills.

Australians can already ill-afford electricity bill increases. Data released by the AER on Monday showed a record number of Australian households are struggling to pay their utility bills. The figures underscore the cost of living crisis that has sapped support for Labor and threatens to derail any backing for the transition away from fossil fuels.

Originally published as Gas supplies tight heading into critical summer period, AEMO warns