AEMO set to be tasked with new gas market responsibilities

Australia’s east coast is on course to experience a looming gas shortage, and the Australian Energy Market Operator may be given the unenviable task of preventing it.

Energy Minister Chris Bowen is under mounting pressure to increase gas supplies. Picture: Sky News

The Australian Energy Market Operator, the agency tasked with ensuring grid stability, is on course to be asked to address a looming east coast gas shortfall, as the federal Labor government and its state counterparts scramble to prevent an economically damaging energy crisis.

The prospect of new powers for the agency marks a tacit acknowledgement that emergency measures are needed if Australia’s east coast is to avoid a shortfall that AEMO has warned could emerge as soon as next winter. But it does little to quell frustration from Australia’s gas industry, which has warned there is no time to waste and that new sources of supply must be urgently unlocked. Federal Energy Minister Chris Bowen and his state counterparts dis­cussed the prospect of new powers for the market operator at a meeting on Friday and agreed to make a final decision in June. That would be the first meeting of the group after the looming federal election, which must be held by May 17.

In a statement after the meeting, the energy ministers acknowledged “urgent” action was needed, but moved to absolve themselves of full responsibility for the expected gas shortfall, which has been years in the ­making.

“Ministers discussed east coast gas supply, noting the importance of urgent demand and supply side actions to help support Australia’s transition to net zero, including anticipated market-led solutions,” the statement read.

“Ministers strongly encouraged the private sector to respond to the clear market signals and deliver the investment and projects needed to ensure gas markets are well supplied.”

The call on the private sector to do more will intensify frustration within Australia’s energy industry, which insists governments are the biggest impediment to new developments.

“They want a market response but they have messed with all the market signals that would incentivise more developments. Even then, we would love to produce more gas but getting permits for new developments is almost impossible,” said one industry source who, spoke on condition of ­anonymity.

The energy ministers did not specify what powers AEMO would be given to prop up east coast supplies, but sources said it was likely to be initially focused on topping up gas storage levels ahead of critical demand periods.

In the longer term, the new powers could unlock a Victorian-led proposal for AEMO to be a foundational buyer of LNG via import terminals.

Höegh LNG's floating gas terminal will be used for LNG imports at Andrew Forrest's Port Kembla project in NSW

Under the proposal pushed by Victoria – a harsh opponent of new gas developments – AEMO would act as an anchor buyer of LNG, probaly from the two most ­advanced projects: Andrew Forrest’s Squadron Energy plant in Port Kembla and Viva ­Energy’s Geelong facility.

Hinting that solution is increasingly likely, the energy ministers said that if given new powers, AEMO would be “technology- and solution-agnostic”.

Importing LNG would be controversial. Critics insist it would be more expensive than traditional piped supplies, but proponents insist that buying offshore gas would be better than a shortfall.

Either way, higher prices could be economically catastrophic, especially for states such as Victoria – Australia’s most gas-dependent gas. Victoria uses gas in winter to heat homes, while its heavy manufacturing industry are major consumers and unable to easily switch to renewables.