Victoria’s Gas Shortage Could Plunge Australian Energy Market into Crisis

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The Australian Energy Market Operator (AEMO) has warned that the state of Victoria is encountering a winter gas shortage that risks dragging the national energy market into a new crisis.

On July 18 night, the AEMO issued an industry letter warning about the risk of curtailment during peak demand.

The letter pointed out that the supply levels at the Iona gas storage facility in Victoria had fallen to record lows due to high demand amid the state’s price cap and that the AEMO would intervene if necessary.

“AEMO has determined that there is a possibility that market or operational responses may prove insufficient to alleviate the threat,” the market operator said, as reported by The Age.

“AEMO is considering all other possible options prior to intervening.”

The Iona plant is the largest independent provider of storage services to the gas market on the east coast of Australia.

Currently, Victoria is placing a $40 (US$27.37) per gigajoule price cap on gas, which causes New South Wales and Queensland to secure more gas from the Iona plant and thus reduces the gas supplies stored at the facility.

The AEMO expected the gas storage to fall to a record low of 6 petajoules by early August, a level that could threaten Victoria’s ability to supply the east coast gas market.

Reports suggested that the regulator may step in to restrict the amount of gas taken from the Iona plant.

Higher Gas Demand Due To Cold Weather and Coal-fired Generation Outages

Lochard Energy, which owns Iona, said demand for gas had risen due to cold weather and “unplanned coal-fired generation outages.”

“It is the case that gas supply and winter peaking capacity are becoming increasingly tighter on the east coast,” Lochard said in a statement.

“This year, unplanned coal-fired generation outages and especially cold winter weather have led to Iona customers starting to withdraw gas from storage earlier and in larger quantities than usual.”

A general view of Coal Seam Gas wells and a wastewater treatment plant in Narrabri, Australia, on Feb. 6, 2021. Brook Mitchell/Getty Images

The latest warning comes following AEMO’s temporary suspension of the east coast energy market amid the risks of blackouts.

Meanwhile, Opposition leader Matthew Guy criticised the Victorian Labour government for the impending gas shortage.

“There are Victorians making a decision, either heating or eating,” Guy said.

“That shouldn’t be a choice that people are forced to make, but it is when the Labor government bans exploration.

“Here’s the alternative–I‘ll allow it, I’ll explore it, I'll open it up so that we’ve got more gas reserves so people can afford to heat their home.”

On the Victorian government side, Deputy Premier Jacinta Allan acknowledged the pressure mounting on the energy network. However, she noted the state was a net gas exporter and that the AEMO said Victoria had enough supply to satisfy its needs.

“The energy minister will continue to work closely with AEMO and our gas operators to ensure supply is adequate for Victoria,” she said.