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Energy Insights

Gas Development Required to Meet Future Energy Demand

According to information provided in the Australian Energy Market Operator’s 2017 Gas Statement of Opportunities, a projected decline in gas production could result in a shortfall of gas-powered electricity generation impacting New South Wales, Victoria and South Australia from the summer of 2018-19. Read on to learn how gas development is required to meet future energy demand.

The Gas Statement of Opportunities (GSOO) report is to assess the adequacy of gas infrastructure, reserves and resources to meet demand in eastern and south-eastern Australia to 2036. Based on an expected decline in annual gas production, the Australian Energy Market Operator (AEMO) advises additional production will be required for gas-powered electricity generation (GPG) and to meet the needs of residential, commercial and industrial gas consumers.

The AEMO report says that this tightening of the domestic gas market will have flow-on effects to the electricity sector unless there is an increase in gas supplies and development. Without this development to support GPG, modelling suggests average electricity supply shortfalls of between approximately 80 gigawatt hours (GWh) and 363 GWh may be experienced in 2018–19 and 2020–21. The scale of these shortfalls would breach the reliability standard which aims to supply at least 99.998% of electricity demand.

Alternatively, if GPG gas requirements are supplied, then gas shortfalls of between 10 petajoules per annum (PJ/a) and 54 PJ/a are projected in the residential, commercial, and/or industrial sectors from 2019 to 2024 in New South Wales, Victoria and South Australia.

AEMO Chief Operating Officer, Mike Cleary said, "Energy supply shortfalls could be mitigated in the short term by an increase in coal-fired generation and renewable energy output, combined with an uptake in technologies such as battery storage, together with increased gas production and the possibility of LNG exporters redirecting a small portion of their gas production to the domestic market."

The AEMO report states that gas price increases could threaten the financial viability of some industrial and commercial loads and reduce demand from forecast levels. Further, as demand for gas for GPG in the electricity market grows, increased gas prices will drive rises in electricity prices which could also threaten the viability of vulnerable electricity loads.

Key points of the AEMO Report

  • Declining gas production may result in insufficient gas to meet projected demand for supply of electricity from summer 2018-19.
  • Maintaining system security is becoming more challenging, increasing the risk of supply shortfalls in both gas and electricity markets.
  • Exploration and development of new gas fields would increase supply in the longer term.
  • Expansion to the South West Pipeline is required to allow sufficient gas flows from Longford to the Iona storage facility, otherwise AEMO may need to interrupt gas supplies during peak winter demand periods.
  • A response from the market is required: increased production from existing gas fields, new fields developed, re-direction of gas from LNG exports, alternative electricity generation sources developed.
  • Continued upward pressure on gas and electricity prices may threaten the financial viability of some commercial and industrial customers.

A number of proposals to alleviate the gas shortfall have been put forward by government and various industry groups, including international gas swaps and domestic gas reservation polices. The former West Australian premier Colin Barnett has called for the development of a $5 billion-plus transcontinental pipeline from WA as a means of solving the potential energy crisis on the east coast.

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