What’s behind Australia’s energy problem?
In recent weeks, the market operator has been forced to stage a series of dramatic interventions to stave off winter power outages. Meanwhile, consumers, already strained by cost-of-living pressures, face higher energy bills.
How the hell did we get here?
Talk to energy market analysts and state and federal governments, and they’ll tell you there’s no one reason.
The winter was exceptionally cold on the east coast, which increased the demand for energy for heating. Australia’s aging fleet of coal-fired power stations are beginning to fail, putting further pressure on gas to fill the void. Victoria’s gas fields in Bass Strait are starting to run out, and wind and solar power generation has at times been insufficient this winter.
All the while, global spot prices have soared as Europe shunned imports of Russian gas in response to Vladimir Putin’s invasion of Ukraine.
Normally gas is expected to rise to meet peaks in electricity demand. The advantage of a gas turbine is that it can be started up in the short term, unlike a coal plant, which can take days to start up. But Professor Bruce Mountain, director of the Victoria Energy Policy Centre, said gas was increasingly being used as an inefficient source of baseload energy.
“Gas has been forced into the market and it’s being used to produce a lot more electricity than it normally does,” Mountain said this week.
Demand for gas has been so strong that Lochard Energy’s huge Iona gas storage facility in southeast Victoria near Port Campbell has been emptying at an alarming rate. Australia’s Energy Market Operator (AEMO) was forced to intervene last week, warning that low pressure in the facility could jeopardize the efficient functioning of the East Coast market.
The problem is that gas-dependent Victoria is currently the only state in which a price cap of $40 per gigajoule remains in place to reduce high wholesale prices.
The cap, which was triggered automatically at the end of May under Australian gas market rules, has prompted New South Wales and Queensland to get more of their gas from the Iona facility, which is the largest independent provider of storage services in the East Coast gas market.
This prompted AEMO to trigger the so-called gas supply guarantee, allowing it to order Queensland suppliers to send more gas to NSW to release gas for Victorian power generation.
The intervention came just weeks after the AEMO took the unprecedented step of briefly suspending the entire East Coast electricity market to prevent winter blackouts.
Australia has enough gas, for now. But clearly, the energy supply network is a mess.
Victoria’s Energy Minister Lily D’Ambrosio said it was clear further ‘immediate action’ was needed to avert a supply crisis, including giving AEMO even more strength to set guaranteed minimum gas storage levels at key national storage facilities such as Iona.
This would act as a kind of indirect drag on exports, forcing gas producers to store more of the resource locally rather than take advantage of booming global demand.
But D’Ambrosio is well aware that this would only represent a band-aid solution.
Longer term, Victoria and other jurisdictions want a domestic gas reservation policy, which would force gas producers to reserve a portion of LNG production for domestic use, helping to maintain a cap on prices. . Such a reserve has been in place in Western Australia since 2006, with 15% of the gas produced in the state being reserved for domestic use.
The issue will be addressed at an August 15 meeting of state and federal energy ministers.
Alan Carpenter, the former Premier of WA responsible for policy in 2006, said The Sydney Morning Herald and age last month that it was unfathomable that the model had not been copied in other parts of the country.
But for many gas producers, the situation is not so simple. They say it can take years to release returns on investments.
David Maxwell, managing director of Cooper Energy, which supplies the Victorian market from gas fields in the Gippsland and Otway basins, strongly disputes D’Ambrosio’s claim that gas producers are “getting off too much “.
Maxwell argues that without the economies of scale associated with Australia’s huge LNG export markets, Queensland’s coal bed gas fields would simply not be economically viable.
He said last week: “The LNG (export) industry has allowed for greater supply.”
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