The Australian Energy Market Operator (AEMO) has released an update to its Victorian Gas Planning Report outlining the need for “additional gas production, alternative supply or other measures to meet natural gas demand in winter 2021”.
The lack of supply comes down to two main reasons:
- Gippsland annual production is forecast to reduce to 38% below the 2018 production forecast (the 2018 forecast reflects a return to the lower production levels seen prior to 2016). Maximum daily production capacity is forecast to reduce by 50% compared to the 2018 forecast.
- Port Campbell annual production is forecast to reduce by 68% from the 2018 forecast, due to some offshore fields ceasing production. Maximum daily production capacity is forecast to reduce by 76%.
The result of which will mean a shortfall projected in the supply available to meet winter peak demand.
“Specifically, AEMO is forecasting a shortfall of up to 36 terajoules (TJ) during a 1 in 20 year winter peak day in 2021, and 220 TJ on a similar day in 2022, and 109 TJ on a 1 in 2 year peak winter day from 2022.”
But if you ask us, another glaringly obvious reason which seems relevant is the ban of onshore development and the use of hydraulic fracturing in the state.
AEMO is hopeful that the report will “encourage market to respond”. A hard task for a state that has actively discouraged investment in developing new gas reserves by placing a moratorium on hydraulic fracturing.
On one front, the AEMO report is positive about the role of gas in ensuring supply, the Victorian government has previously played down the potential of natural gas. Yet the report only notes that “even if the development of resources post-2020 is permitted and prospects are identified by the Victorian Gas Program, there is likely to be some time lag before any gas can be brought to market”.
Lack of development of new supply is the key problem. The service demand is not diminished; in fact it is increasing in terms of numbers connected to a gas network, at a rate of 100,000 a year, with total service numbers now above 5 million.
These factors have the effect of tightening supply and pushing prices up – something repeatedly confirmed by the Australian Consumer and Competition Commission in the past year.
The gas industry started warning of the coming crunch seven years ago. But instead of addressing the problem, successive governments in Victoria and NSW have made it worse, buying back licences and stifling exploration in their earnest desire to appease enviro-activists.
Victoria piled bad decisions on top of poor policy, and introduced what is understood to be the world’s only ban on natural gas exploration and development.
The Report does however note that potential supply could be met via Queensland or Western Australia both of which would require the development of a pipeline. So rather than detail how Victoria could be helping itself, the report only outlines how other states could potentially come to Victoria’s aid.
So, it would seem that Victorians should brace for the cold…Winter 2021 is in fact coming.