Urgent action needed if Australia is to avoid catastrophic gas shortfall, operator warns

Gas generators may be forced to burn diesel to keep the grid running after authorities warned states face a catastrophic supply shortfall.

Woodside Energy Pluto LNG Plant J onshore gas plant. Picture: Woodside Energy

Gas generators may be forced to burn diesel to keep the power grid running after authorities warned that states face a ­catastrophic ­supply shortfall from next year unless new sources of supply are developed.

The Australian Energy Market Operator revealed that gas generators could have to run on diesel through to 2026 during ­periods of high demand, due to the lack of gas on the east coast.

Gas generators were last forced to use diesel to prop up the electricity grid in 2022 when Russia’s invasion of Ukraine triggered a domestic crisis.

Critics say burning diesel ­remains an emergency solution, adds unnecessary costs to households and big users, and will hinder efforts to curtail carbon dioxide emissions.

AEMO chief executive Daniel Westerman said: “Running gas-powered generators on liquid fuels could provide temporary ­relief during periods of extremely high gas demand.”

Australia is the world’s largest producer of LNG and a major ­exporter to Asia, but a steep drop-off in offshore gas from Victoria’s Bass Strait and failure to ­develop new volumes because of state government bans have sparked new fears over energy security.

The shortage shock has sparked debate over whether too much gas is being shipped overseas from the three Queensland LNG plants in Gladstone.

One of the biggest LNG producers, Santos, rejected suggestions that Australia should simply pull back gas from lucrative ­export markets and focus on its domestic needs.

“It would leave a hole that I don’t think in the long term any of us could fill,” said Santos chief executive Kevin Gallagher.

“And if it is going to be filled, it is going to be filled by countries like Russia and the Middle East. I’m not sure that is the best long-term security … solution for a lot of those Asian economies.”

As The Australian revealed on Wednesday, AEMO said gas shortfalls could emerge as soon as next year under extreme weather conditions and the deficiencies would grow from 2026 in southern states.

Even if Australia avoids the ­extreme weather conditions that drive demand for gas in Victoria and the ACT primarily, AEMO said a material shortfall would occur in 2028 as traditional sources to the east coast run dry.

Federal Energy Minister Chris Bowen insisted the government was making progress in safeguarding gas supplies.

“The Albanese government is delivering policies to better manage projected supply issues, working with the states to expand AEMO’s powers to manage seasonal and localised gas supply shortfalls, including boosting domestic gas storage,” said a spokeswoman for Mr Bowen.

Authorities have previously relied on a string of gas import plants to head off a shortfall and ensure users have enough supplies to get through winter peaks.

However, facilities have either been dumped, sidelined, delayed or, in the case of Andrew Forrest’s Port Kembla plant in NSW, had a lack of customers.

Mr Westerman said more ­developments and projects were needed to avoid the shortfall ­including LNG import plants, pipeline upgrades and new local volumes.

“While each individual investment could delay shortfalls for a number of years, a combination of these options will be needed to fully address gas supply issues,” Mr Westerman said.

Gas industry executives hope the call for action spurs authorities to approve new supplies and inhibit the capacity of opponents to block new developments.

Several new developments such as Santos’s Narrabri gas project and the expansion plans of Senex Energy, backed by Gina Rinehart and South Korean steel giant POSCO, remain sidelined awaiting regulatory approvals that have dragged on for months.

Mr Westerman said there had been progress in improving ­supplies to the southern states in recent months, which had helped offset declining production from the Bass Strait in the near term. But new sources of supply would need to be delivered to have any hope of heading off the 2028 shortfall.

Mr Westerman said gas production was forecast to fall faster than demand in the south. Bass Strait had historically supplied about two-thirds of southern Australia’s gas. “From 2028, supply gaps will increase in size as Bass Strait production falls significantly,” the AEMO chief said.

The federal government insists it supports and values the role of gas, but critics say regulatory delays are indicative of its commitment to bolstering new supplies. Gas remains polarising and pockets of the electorate are deeply opposed to new developments. Critics of the Albanese government believe Anthony Albanese is unwilling to alienate a key voter bloc ahead of an election due in 2025.