Hot summer, power outages risks gas shortage, ACCC warns

A hot summer risks triggering an LNG supply shortage, Australia’s consumer watchdog has warned.

A hot summer requiring gas to top up electricity generation coupled with power station outages risks triggering an LNG supply shortage, the competition watchdog has warned.

A new report released by the Australian Competition and Consumer Commission (ACCC) found that although gas supply to Australia’s east coast market was expected to narrowly avoid a shortfall in the 2024 March quarter, that hinged on Australia’s excess gas not being sent overseas and demand for gas used to generate electricity not increasing.

“If additional uncontracted gas is exported and there is an upswing in gas-powered generation demand, then gas supply could be insufficient to meet demand,” the ACCC said.

High gas electricity generation would be dependent on weather and uncertainty in the electricity market, the competition watchdog said.

Australia could be facing a gas shortfall. Picture: Supplied

Despite the federal government claiming the improved outlook showed domestic shortages would be avoided and higher exports would top up government tax revenues, the ACCC remained concerned.

“While the overall outlook is positive, there remains risk that the outlook could worsen, particularly from higher-than-expected gas demand,” it cautioned, reflecting the fine balance between supply and demand.

The ACCC’s September interim gas inquiry report, released on Wednesday, looks at gas supply and demand into 2024. It says the east coast’s likely surplus of gas is 1.4 petajoules in the first quarter of 2024 if all uncontracted LNG is exported.

But the surplus has been slashed from a 7.2PJ excess compared with three months ago.

Resources Minister Madeleine King said the outlook moving into 2024 had improved. Picture: NCA NewsWire / Naomi Jellicoe

While gas supply in the March quarter will be 5.9PJ higher than forecast in June 2023, export demand is expected to surge in the March quarter, up 8.2PJ from the June 2023 forecast.

“This latest advice from the ACCC shows the gas outlook for 2024 is improving thanks to the sustained effort of government and industry to ensure there is sufficient gas supply at reasonable prices to meet domestic demand,” Resources Minister Madeleine King said.

But despite the projected surplus for early 2024, the industry’s concerns for potential long-term winter shortages have not been alleviated.

“While the report provides a positive outlook for the next six months, the ACCC did not update their long-term outlook with forecast shortfalls still likely from 2027 unless production is expanded,” Samantha McCulloch, chief executive of the peak LNG industry body Australian Energy Producers, said.

“New gas supply is urgently needed and can put downward pressure on prices, reduce emissions by replacing coal and deliver substantial economic benefits to Australians.”

Australian Energy Producers chief executive Samantha McCulloch said new gas supply was urgently needed. Picture: NewsWire / Sarah Marshall

Ms McCulloch said that investment was particularly needed in NSW and Victoria where huge populations rely on gas.

Since the Albanese government introduced a price cap, currently at $12 a gigajoule, and an additional code of conduct around how gas is offered and sold, there has been a dearth of new commitments towards supply projects.

At the time, the intervention was met with fierce opposition from gas producers who accused the federal government of “taking control” of the gas market while warning of future dysfunction and higher energy bills without steps to ensure additional supply.

In March, the Australian Energy Market Operator cautioned that both businesses and households could confront winter gas supply shortages.

Treasurer Jim Chalmers said the averted shortfall was thanks to the government’s intervention in the gas market. Picture: NCA NewsWire / Martin Ollman

This looming shortage is exacerbated by the declining production from the Bass Strait, which serves as the primary source of domestic gas for the east coast.

Treasurer Jim Chalmers claimed that the short-term positive outlook had been complemented by its mandatory gas code of conduct that the Coalition had opposed.

“Our energy price relief plan is deliberately designed to deliver better, fairer prices for Australian consumers at the same time as we honour our trusted role as an energy supplier,” Dr Chalmers said. “It’s really pleasing to see more evidence that it is working as we intended.”

Originally published as Hot summer, power outages risks gas shortage, ACCC warns