Victoria demands new powers for regulator as AEMO’s emergency gas response raises questions
The Australian Energy Market Operator must be beefed up because the energy crisis is far from over, Victoria’s Energy Minister tells The Australian Strategic Business Forum.
The energy market operator must be given stronger powers to ensure enough gas is available for domestic users as a supply crunch deteriorates across Australia’s eastern states, Victorian Energy Minister Lily D’Ambrosio says.
Her comments follow the Australian Energy Market Operator activating its emergency gas supply guarantee mechanism on Tuesday for just the second time on record to help arrest shortfalls in Victoria as the nation’s electricity market lurches to a fresh crisis.
Queensland LNG exporters have been asked to make more gas available for southern markets but Ms D’Ambrosio said AEMO needed to be handed new tools due to a shortage warning in place until the end of September.
“I would go so far as to say that the market operator actually needs to have stronger tools in its toolbox to be able to ensure that facilities, such as Iona, are not faced with an unacceptable situation for a country that produces more than sufficient gas to meet their domestic needs,”
Ms D’Ambrosio told The Australian’s Strategic Business Forum on Wednesday.
Storage levels at Victoria’s underground gas storage plant, Iona, have dropped to a record low, which on Monday forced AEMO to put an official system security threat in place until the end of September.
“It’s got the degree of volatility and uncertainty with gas supply and that’s a sign that the market’s not working,” Ms D’Ambrosio said.
“And I think that the market operator needs to have those tools in the toolbox to make sure that we don’t have these situations arising where there is genuinely no supply issue in terms of the quantity that’s available in this country.
“The fact is, it’s not going to the routes it’s needing to go and it’s also, of course, going in at an expensive price which is another problem.”
The Ai Group said the national energy system continued to be under intense pressure and it warned that rationing could follow from the price cap controls which remain in place for Victoria.
“The acute phase of our energy crisis is not over. It could get worse at any time this winter,” Ai Group chief executive Innes Willox said.
“We are clearly not out of the woods. And most energy users have not yet felt the cost impact of recent necessary emergency measures, nor of the less dramatic but more sustained rise in wholesale electricity and gas prices that will last for years.
“Serious pain is coming for industrial energy users and their customers.”
AEMO chief executive Daniel Westerman said he was concerned by the gas situation.
“We’ve had gas-fired power generation units who have not been able to source gas supply; we have had a depleted amount of storage down to levels that are worryingly lower than last year and lower than previous years,” Mr Westerman told the conference.
“And the inability of gas-fired power generation to source gas to produce electricity has informed us to trigger the gas supply guarantee.
“That gives us a much greater set of visibility on gas flows throughout the country. We’re now working really constructively with market participants to make sure that we get more gas flowing south out of Queensland to meet demand.”
Queensland LNG producers — led by Santos, Shell and Origin Energy — are all major domestic suppliers to Australia’s eastern states in addition to selling gas offshore to buyers in Asia.
However, the spotlight has again fallen on whether new restrictions should be enacted to ensure enough supply is available locally as the federal government reviews the gas export trigger and a potential domestic reservation scheme.
Critics of the Victorian government point to a set of ongoing bans for onshore gas exploration in that state which have limited new sources of supply available for the market.
Alinta Energy, which runs Victoria’s Loy Yang B coal plant in the Latrobe Valley, said government action on gas was now required.
“I for one say we should have a reservation policy for gas on the east coast of Australia but it should be prospective, not retrospective, so those future investment can be made in full knowledge of the rules in which we’re operating,” Alinta chief executive Jeff Dimery said.
The Victorian minister said the current situation was untenable.
“The worst thing is to come in and out with triggers when the market is so volatile and we’ve always got to remember the root cause of this problem is that 70 per cent of our gas produced in this country is exported,” Ms D’Ambrosio said.
“What we’ve seen in Australia and Victoria in the last few weeks — and I think we’ll see it for some time to come — is that volatility set by benchmark global prices for gas is having a very deleterious impact on consumers here in Australia. That’s got to change and the market needs to work in favour of consumers.”
The latest shortage comes as gas demand is typically three times higher in the Victorian winter than summer. A cold snap and booming LNG exports have limited domestic volumes while Russian sanctions have deprived global markets of supply and deepened a global energy squeeze.