Victoria issues gas demand amid shortfall fears

Fears over a winter gas crunch in the next few years have sparked the Victorian government into a plea to extend a gas storage deal.

Exxon and BHP’s Longford gas plant in Gippsland. Picture: Stuart McEvoy

Victorian has sought a national rule change for gas storage to help avoid a “system black” outage that could cripple households and business, ­risking a potential $1.6bn economic hit.

State Energy Minister Lily D’Ambrosio has written to the national rule-maker asking for a three-year extension to the gas rules to allow the Australian Energy Market Operator to continue tapping into the Dandenong LNG storage facility to sidestep a gas squeeze.

With steep gas declines from Victoria’s ageing Bass Strait, supply shortages are set to hit during peak winter demand with industrial users in the southern states most exposed. Accessing the LNG reserve would boost the power grid operator’s ability to avoid the small risk of a “system black-type event” and avert the potential curtailment of the gas market, according to the request.

“A gas supply imbalance that initially presents as a reliability event could rapidly evolve into a system security event in the absence of an LNG reserve,” Ms D’Ambrosio’s letter says. “If planned curtailment is too slow, and the distribution networks are isolated and air ingress occurs, purging of the network and relight of appliances will be needed.”

The value of avoiding a m or gas outage was estimated at $272m to $1.6bn by the Australian Energy Market Commission when it signed off on the Dandenong storage measures in 2022.

The Dandenong facility played a critical role “and it is important that it can continue to be fully used, especially in this context of growing risks to reliability of supply”, Ms D’Ambrosio says in a letter sent to AEMC chair Anna Collyer. “As both AEMO and the Australian Competition and Consumer Commission have flagged, maximising all available storage, including shallow LNG storage, will be a key factor in maintaining reliable supply to end consumers.”

The current scheme gives AEMO powers to act as a buyer and supplier of last resort of uncontracted storage capacity at the Dandenong LNG plant at a cost of less than $10m a year.

Ahead of a May 3 federal election, energy has emerged as a critical campaign issue with voters set to decide between the Coalition’s “Australian gas for Australians” scheme and Labor’s plan to deliver a green energy-dominated grid by the end of the decade.

Ms D’Ambrosio said broader gas reforms led by the Victorian government would not be completed in time to fill gas storage needs for “immediate upcoming winters”. Instead, extending the ability to access the Dandenong LNG plant for a period of between three to 10 years was required to secure energy supplies in the state. The previous gas storage pact expires in December 2025.

The Victorian government said because of its advocacy in 2022, national gas storage facilities had to store sufficient reserves ahead of winter for the whole east coast.

“This was temporary, that’s why we’re pushing to extend this rule change for another three years, to make sure there is enough gas when it’s needed most and prevent huge price hikes,” a Victorian government spokeswoman said.

Ms D’Ambrosio is already leading a push for federal and state authorities to unite on solving the shortage problem through underwriting LNG volumes into Victoria and NSW.

A decision on new powers for AEMO to address east coast gas supply gaps emerging from 2029 will be made at the next meeting of energy ministers.

The Victorian government last year backflipped on its decision to ban gas connections to new homes in the state in a policy shift that also saw state Labor introduce laws aimed at encouraging new offshore gas storage projects.

Victoria has the highest use of residential gas in the country, with about 80 per cent of homes connected to the gas network.

The Albanese government in March was forced to strike an emergency deal for gas volumes this winter after the competition regulator issued shock figures warning a shortfall of gas supplies for southern states had doubled from last year.

The Australian Competition and Consumer Commission blamed increased LNG exports and a fall in production from the Bass Strait and Cooper Basin for the supply squeeze.

It predicts gas supply in the east coast gas market could fall short by 9 petajoules from July to September if LNG producers export all their uncontracted gas.

Originally published as Victoria issues gas demand amid shortfall fears