‘Perfect storm’ warning issued to Australia’s east coast energy market

The gas industry has issued a warning to Anthony Albanese and Peter Dutton that urgent action is needed on gas supply to avoid an energy crisis. Picture: Glenn Campbell

Australia’s east coast energy market is facing a perfect storm of higher global LNG prices, volatile and intermittent renewables penetration, coal plant outages and extreme weather, increasing fears of gas shortages, spiking power bills and blackouts.

Major Australian energy players Senex Energy and APA Group, manufacturers and gas companies have issued a warning to Anthony Albanese and Peter Dutton ahead of the federal election that urgent action is needed on gas supply and infrastructure to avoid a crippling energy crisis.

Manufacturers are reporting that businesses are at breaking point, with globally uncompetitive energy prices threatening the viability of companies.

Senior industry sources said the east coast had “dodged a winter bullet” after ageing coal plants and gas helped fill the void of lower renewables output driven by a wind drought.

The increased reliance on coal and gas, fuelled by wind and hydro performing well below expectations, triggered a gas supply threat notice from the Australian Energy Market Operator in June.

Gas supplies at Iona in Victoria, Australia’s biggest east coast storage facility, have begun refilling thanks to favourable weather conditions but remain at their weakest starting position in recent years ahead of next winter.

Adding to market anxiety are predictions of an increase in netback prices fuelled by rising global LNG demand, with the ACCC expecting an average price lift to $19/GJ in the first half of next year compared to $12.50 in 2024. While exporters pumped more gas into the market at the lower price, additional domestic supply is unlikely to remain at the same levels.

The AEMO’s east coast gas system threat notice, ordered in response to lower renewable energy generation, outages and a cold snap, and originally expected to end on September 30, was revoked on Friday after the regulator said supply levels had improved. Iona was 45 per cent full on Sunday.

Ahead of an election in which gas will play a central role in the net-zero and energy plans of Mr Albanese and Mr Dutton, industry leaders have declared “the time for talk is over”. Labor and the Coalition, who are pitting renewables against nuclear, are yet to release detailed policies on how they will accelerate gas supply and infrastructure.

Outgoing Senex Energy chief executive Ian Davies warned that “thanks largely to government inaction and intervention – in a few short years, we won’t have enough gas supply in Australia to meet our demand”.

Outgoing Senex Energy CEO Ian Davies.

In his final speech after 14 years leading the Australian gas giant owned by Korean company POSCO and Gina Rinehart’s Hancock Energy, Mr Davies said 90 per cent of “our primary energy sources in Australia today still come from fossil fuels” compared with 94 per cent in 1984.

“After more than three decades of striving and political manifesting to will the clean-energy transition into existence, fossil fuels still deliver the vast majority of primary energy for this country,” Mr Davies said.

“Like Groundhog Day, we have heard repeated warnings from the Australian Energy Market Operator calling for urgent investment in new supply. And like Groundhog Day, our government has buried their head in the sand, instead tying themselves – and our industry – in a monumental knot of intervention.

“Thankfully, and after some long and hard advocacy by industry and users alike, the federal government agreed that we do need continued investment in new gas supply. But now there needs to be action, not more talk. There has never been a more important time to get the policy settings right and bring more gas online – and quickly. Sadly, regardless of pace, more local supply simply won’t be enough to avoid these forecast shortfalls, in my view.”

APA Group chief executive Adam Watson, who leads Australia’s biggest energy infrastructure company, said “without new gas supply, and the associated transportation and storage infrastructure, we put at risk Australia’s energy security”.

“In a world of gas shortfalls, Australia’s industry can’t operate. Consumers don’t have gas for heating or cooking facilities. And we’ll have shortfalls in electricity supply,” Mr Watson said.

An AEMO spokeswoman on Sunday said “the possibility of colder weather into early spring does bring about some risks”; however, it was confident demand could be met. “In the event that there is gas storage or supply shortfalls, AEMO has powers to help manage potential operational risks,” she said. The AEMO reiterated that “new investment is urgently needed if gas supply is to keep up with demand from homes and businesses, and for gas-powered electricity generation”.

Energy Minister Chris Bowen’s spokeswoman said the AEMO is “satisfied that supply of gas in the east coast system was adequate and current supply and demand forecasts mean there is no threat of shortfalls notwithstanding the recent period of unseasonably high demand”.

“This winter has shown why the Albanese government’s plan to turbocharge renewables with large amounts of long-duration batteries is more critical than ever to secure cheap, clean, reliable energy for households and businesses following a decade of Coalition energy inaction and neglect,” the spokeswoman said.

The Coalition, which is close to releasing its gas policy, has committed to speeding up approvals, unlocking gas in basins including Beetaloo, defunding the Environmental Defenders’ Office, reinstating its National Gas Infrastructure Plan and an annual release of offshore acreage for exploration and development in the NT and Western Australia.

Opposition climate change and energy spokesman Ted O’Brien said “Australia’s energy market is … one unexpected event away from collapse”. “It is only getting worse as energy demand increases and supply decreases, which eventually leads to rolling blackouts. Labor is trying to blindfold Australians as it drives the economy towards an energy catastrophe,” Mr O’Brien said. “As bad as this winter has been, we’ve seen nothing yet. Labor’s policies will make gas shortages a permanent feature of our energy market. Australians will become poorer and our nation weaker as Labor continues to destroy our energy market.”

The government is confident there will be no annual supply gaps forecast before at least 2028. It released its Future Gas Strategy in May and has been accused of creating an environment backing renewables over gas.

APA, which owns 15,000km of pipelines worth $21bn, delivers half the nation’s gas and has stakes in storage facilities, power stations, wind and solar farms, is struggling for sign-off on a major Queensland pipeline expansion that has delayed an investment decision. Australian Energy Producers CEO Samantha McCulloch said “without immediate action to bring on new gas supply Australia faces economy-destroying gas shortages that will mean higher energy prices, blackouts and manufacturers closing”.

“With the warning bells growing louder, it is past time for energy ministers to take the threat of gas supply shortages seriously. AEMO has warned that eastern Australia will need much more gas … as a back-up for growing shares of renewables. Governments need to ensure we have the market drivers and regulatory certainty to make this happen.”

Manufacturing Australia chief executive Ben Eade said “if you want competitive Australian manufacturing, you need competitively priced gas”.

“If you want a smooth transition to lower-emissions manufacturing, you need gas … at globally competitive prices, and the fact is that we don’t have those things in eastern Australia,” Mr Eade said.

He added: “We don’t actually have a looming shortage of gas, we have a current shortage of gas.”