Gas giants demand decade reign for energy security

Victoria is worried about gas shortfalls later this decade. Now, several industry heavyweights want a 10-year extension of a storage plant in the latest energy battleground.

The Victorian government wants a three-year extension to the gas rules to allow the Australian Energy Market Operator to continue tapping into the Dandenong LNG storage facility to sidestep a gas squeeze.

Industry heavyweights have demanded an emergency Victorian gas storage facility is kept open for a further ten years, arguing the state government’s intended three-year extension is insufficient as fears grow of gas shortages later this decade.

Victorian Energy Minister Lily D’Ambrosio sought a national rule change in April for gas storage to help avoid a “system black” outage that could cripple households and business, ­risking a potential $1.6bn economic hit.

With steep gas declines from Victoria’s ageing Bass Strait, supply shortages could hit once the Longford plant winds down at the end of 2028, with industrial users in the southern states the most exposed.

The Victorian government wrote to the national rule-maker asking for a three-year extension to the gas rules to allow the Australian Energy Market Operator to continue tapping into the Dandenong LNG storage facility to sidestep a gas squeeze.

However, the owner and operators of Dandenong LNG – pipeline giant APA Group and industrial gases producer BOC – have told the national rule maker that a decade extension is needed to justify significant spending required to upgrade the ageing facility. The previous gas storage pact expires in December 2025.

Victorian Minister for Energy and Resources Lily D'Ambrosio. Picture: Diego Fedele/NewsWire

“BOC is prepared to reinvest in the LNG plant and address reliability threats, debottleneck capacity and provide firm availability through peak gas periods. However, the investment certainty required is a minimum horizon of ten years to recover the capital deployed,” BOC said in a submission to the Australian Energy Market Commission.

The Victorian government has argued against a decade-long extension for Dandenong LNG, citing fears that the cost of the operators adding hefty infrastructure investment and refurbishment meant it would ultimately be passed on to customers at a time of already inflated bills.

It adds to a multitude of overlapping policies aimed at easing a complicated transition to renewable energy on the east coast with Victoria concerned about having back up supplies of gas given high demand within the state.

A Victorian government-led push for the commonwealth to underwrite importing LNG into Australia also faces a challenge from states including South Australia over concerns about energy users being slugged with extra costs as the battle to head off a gas supply shortage heats up.

Still, BOC pointed to the danger of not having enough gas supplies in the state. The value of avoiding a major gas outage was estimated at $272m to $1.6bn by the Australian Energy Market Commission when it signed off on the Dandenong storage measures in 2022.

“BOC notes that one curtailment event would exceed the all-up cost of a ten-year commitment, the DLNG facility is ultimately an insurance policy against a serious shock event that would impact the entire Victorian economy,” said the company, which provides liquefaction services at Dandenong.

APA also backed a 10-year extension for the facility.

“A proposed three-year extension does not offer sufficient certainty to support the significant capital investment required in the liquefaction facilities for the use of Dandenong LNG,” APA said.

“Investment in liquefaction facilities is not supported by the current AEMO 2022 LNG Storage Agreement, and the current liquefaction tariffs are insufficient to recover the

costs associated with the required capital investment. To support investment and ensure that any tariff increase remains reasonable, in line with the National Gas Objective, a longer-term rule change is required.”

ExxonMobil’s Longford facility serves the bulk of all gas to the east coast, but it is struggling to maintain production as supplies begin to wane. Supplies are expected to be exhausted by 2028.

Last winter, Australia was plunged into a fresh energy crisis amid warnings of gas shortages along the eastern seaboard after supply disruptions and a winter cold snap triggered a run on reserves, raising fears of manufacturing shutdowns if ­supplies are curtailed.

The meeting was held after a “threat notice” was sent to the gas industry, warning that the market had tightened substantially amid supply disruptions from a major source in Victoria.

The Energy Users Association of Australia used its submission to take aim at AEMO for the threat notice last year, which affected several major manufacturers in the state.

“Given that the interim arrangements were in place in 2024 which provide for AEMO to use the LNG from the Dandenong LNG facility for the purpose of gas system security and reliability, it is disappointing that in June 2024 AEMO issued a threat notice and advised our members in writing and verbally that they may have their gas supply interrupted rather than additional gas injections and replenishment overnight from the Dandenong facility.

“As you can imagine, this caused unnecessary stress and anxiety for affected member companies and their boards,” EUAA chief executive Andrew Richards said.

The EUAA said it supported the proposed introduction of additional measures to improve the information available to AEMO and the market “about the operation of all components of the liquefaction and storage facilities”.

Originally published as Gas giants demand decade reign for energy security