AEMO warns of immediate gas shortfall threat as cold snap, renewable lulls and outages bite

The Bass Strait has long been a major source of Victoria's gas, but supplies are depleting. (Supplied: ExxonMobil)

The body that runs Australia's energy markets has warned of immediate risks to gas supplies on the east coast following a cold snap, lulls in renewable energy generation and problems at a major gas plant.

In an extraordinary step, the Australian Energy Market Operator this morning issued a "risk or threat notice" for east coast gas supplies amid a looming shortfall of the fuel in southern states such as Victoria, New South Wales and South Australia.

The warning was sparked by a spike in gas demand following a cold spell, a lack of renewable power in recent weeks and an outage at the Longford gas plant in Victoria – the biggest source of gas in southern Australia.

Combined, the shocks to the system have led to a run on Victoria's most biggest and most important gas storage facility at Iona, about 230km south-west of Melbourne.

They have also sent the gas market skywards, with prices trading at almost $30 a gigajoule today – levels last seen during the energy crisis two years ago.

AEMO said the disruptions were of a "nature and magnitude" significant enough to threaten gas shortfalls on days of peak demand for the next three months or more.

"The likely duration of the identified risk or threat is from 19 June 2024 and is expected, on the basis of current information, to continue until no later than 30 September or as otherwise advised by AEMO," the agency said in a statement.

According to the market operator and industry observers, gas storage levels were being rapidly depleted as pressure came on to the system from all angles.

A recent run of cold weather has caused a spike in demand for gas for heating across many of the southern states.

At the same time, seasonal lulls in wind and solar output has led to a big increase in the amount of gas being burnt to produce electricity.

Meanwhile, AEMO noted, production at the Longford gas plant operated by US oil and gas giant ExxonMobil had been severely reduced because unplanned maintenance requirements.

This comes on top of the declining output from Longford, which ExxonMobil and its joint venture partner Woodside are planning to progressively shut down in the coming years as gas reserves in the Bass Strait fall away.

Shortfalls 'entirely predictable'

Rick Wilkinson, the chief executive of consultancy EnergyQuest, said the risk of shortfalls was worrying for gas users but ultimately predictable.

Mr Wilkinson said the security of Australia's east coast gas market had been getting worse for years as investment in new supplies dwindled.

"The lack of investment, and some would say outright hostility to gas industry investment in the southern states has left south-east Australia closer to gas supply shortfalls," Mr Wilkinson said.

"The margin for safety continues to be eroded.

"Today's gas market operator's notice of a gas system risk or threat for the southern states is the next real example of what is to come more regularly.

"We have lost the gas safety margin for reliable supply, and what we have been doing for the last five or more years has not worked to address the gas shortfalls — expected in 2028, and earlier for peak demand conditions as we are currently experiencing.

"This risk will get progressively worse as Longford gas fields deplete, and there is no investment in more gas supply, storage or other gas options such as LNG imports."

In its notice, AEMO foreshadowed it may need to take measures to prop up the supply of gas to the east coast market, where the fuel is used by millions of households and thousands of often major businesses.

Among those measures were requiring producers, pipeline operators, storage providers and other market players to take "reasonable steps" to ensure there was enough supply.

This could include producers in Queensland, where much of Australia's east coast gas supplies are turned into super-chilled liquid form and sent to North Asia on ships.