Will we run out of gas this winter?

In unfavourable conditions, gas shortfalls on peak days this winter are a distinct possibility highlighted by AEMO’s 2023 Gas Statement of Opportunities (GSOO).

The GSOO is released yearly and provides a forecast of the adequacy of east coast gas supplies based on demand forecasts. The GSOO can highlight to the market and regulators where gas supplies may be inadequate, prompting an industry or policy response.

This 2023 iteration of the GSOO identifies the risk of short-term supply shortfalls this winter and long-term gas supply gaps. In this Chart of the week, we will focus on the short-term shortfalls identified in the Southern states (NSW, VIC, ACT, and SA).

In the GSOO, two scenarios are highlighted to assess short-term supply adequacy.

In the Cold year scenario, as seen in Figure 1, shortfalls are expected in some peak days from winter 2023 (this winter) onwards. This is due to adverse weather conditions where cold snaps drive up gas demand from residential and industrial consumers and coincident demand from gas-fired generation where coal plants are unavailable and variable renewable generation is low.

In the Mild year scenario, seen in Figure 2, supply is expected to be adequate; however, the supply and demand balance remains extremely tight on these peak days.

The above figures show there will be days with an extremely tight supply and demand balance, even in a mild winter.

The GSOO suggests limited options for mitigating these short-term supply risks:

  • It is crucial that infrastructure upgrades (such as the Western Outer Ring Main, second compressor at Winchelsea, upgrades of the SWQP) are commissioned on schedule (the GSOO assumes they are)
  • Ensuring shallow storage facilities, which can respond to daily shortfall risks, are full. A rule change from the Victorian Government ensures this will be the case at Dandenong, while Newcastle is also expected to be available for high-demand days in winter 2023
  • Demand side responses, including using gas-fired electricity generation less during times of peak gas demand and demand response from major gas and electricity use to reduce strain on the grid overall.

Without being alarmist, the GSOO highlights risks for coming winters that will need careful management. If LNG exporters choose to export their uncontracted gas volumes, interventions may occur to prevent this if domestic supply adequacy is at risk, and the Federal Government has floated a mandatory code of conduct to address this. This requires the recent interventions in regulating gas commodity prices to be done prudently to avoid exacerbating supply constraints while limiting effects on consumers.

Most importantly, the GSOO also illustrates the increasing interaction between gas and electricity markets. As coal-fired generators reduce output or go off-line, gas will increasingly be relied on to provide backup generation if not enough VRE is available. Yet gas supply constraints should now also be considered along with electricity constraints. This GSOO is a reminder for electricity generators and users to continue to pay close attention to gas markets as these markets become increasingly entangled.

Cornwall Insight Australia provides regular market intelligence reports to clients throughout Australia and globally. Our insights furnish strategic decision-making in a rapidly changing energy market. Please contact Mohsin Ali to discuss how our cost-effective regular reports can assist your decision-making and investment planning.

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