Australia’s national energy market operator triggers gas supply guarantee

Australia’s energy market operator has executed a bold move in order to stop a looming gas crisis in one state.

The national energy market operator has activated its gas supply guarantee for only the second time in a move to save Victoria from a looming gas crisis.

The Australian Energy Market Operator (AEMO) announced on Tuesday night that it had ordered Queensland suppliers to send gas to NSW, preventing the Sunshine State from selling it overseas.

It means NSW will get its gas from Queensland instead of Victoria, as the southern state battles record low supply at its Iona gas storage facility in Port Campbell.

the Iona gas storage facility in Port Campbell has record low supply. Picture: Lochard Energy

“The producers and pipeline operator have responded positively to the request for additional gas supply. AEMO will continue to work with the parties to understand gas supply availability,” the AEMO said in a statement.

“Challenging generation conditions experienced from early June continue in the national energy market. This has resulted in a greater reliance on gas-powered generation and larger than forecast inventory reduction at the Iona gas storage facility in Victoria.

“Market participants are responding to AEMO’s requests and directions to maintain a secure operating state for Victoria’s gas system.

“AEMO expects the gas supply guarantee and threat to system security mechanisms to need to remain in effect until 30 September, 2022, or until gas supplies are sufficient and the threat to gas supply caused by Iona storage inventory depletion has subsided.”

The measures are expected to be in place until September 30.

The gas supply guarantee comes after the AEMO issued two “threat to system security” notifications due to low supply levels at Iona.

The first notification on July 11 told market participants to stop buying gas from Victoria’s Domestic Wholesale Gas Market (DWGM) in an attempt to reduce Iona’s depletion rate.

While the request was followed, Iona’s gas supply levels continued to fall, prompting the AEMO to issue a second threat to system notice on Monday preventing purchases from the DWGM for electricity generation.

Iona’s owner Lochard Energy attributed the issues at the facility to unplanned outages and cold winter temperatures.

“Lochard Energy notes recent statements by the AEMO notifying participants of a threat to system security in the Declared Transmission System due to low Iona underground gas storage inventory,” it said in a statement.

“We understand the pressures on energy supplies on the Australian east coast but note that the Iona gas storage facility is operating effectively and in the manner for which it was designed.

“This year, unplanned coal-fired generation outages and especially cold winter weather have led to Iona customers starting to withdraw gas from storage earlier and in larger quantities than usual.”

Iona gas storage facility’s supply levels continued to drop despite a ‘threat to system security’ notice.

The AEMO said there was no impact to gas supply in Victoria at this stage.

But the market operator’s chief executive Daniel Westerman acknowledged gas and energy were in “fragile situations” while speaking at the Clean Energy Summit on Tuesday.

“At AEMO, I feel like we’ve been standing in the eye of the storm recently. Our staff have felt constant stress as we work to keep the lights on and the gas flowing around the country and around the clock,” he said.

“The situation in both gas and electricity remains fragile, and many risk factors still persist.”

Australian Energy Market Operator chief executive Daniel Westerman said gas and energy were in a ‘fragile’ situation. Picture: NCA NewsWire / Nicki Connolly

Australian Petroleum Production & Exploration Association acting chief executive Damian Dwyer said more investment was needed in the gas industry.

“The gas supply guarantee is a short-term measure. The real and enduring answer is more investment to bring more supply into the market.”

Low levels of renewable power and increased demand for power during winter have been attributed to the issue, as well as global market pressures from the Russian invasion of Ukraine.

The gas supply guarantee was triggered for the first time back in June, while a $40 per gigajoule cap price remains in place for Victoria.