Victorian ban on new home connections is a distraction in the looming gas supply crisis

Most of the media coverage about Victoria’s energy focuses on the state government’s determination to drive out the use of gas in homes – but by far the bigger challenge will be how it copes with the shutdown of coal-fired generation in the rest of this decade without access to an adequate amount of gas-fired power.

The most recent Australian Competition and Consumer Commission quarterly reports on the gas market outlook now regularly focus on the possibility of a multi-petajoule shortfall for supply in NSW, Victoria and South Australia based on existing domestic supply contracts. That this hasn’t occurred so far is no guarantee that it won’t happen.

Riding luck can work – but only until the luck runs out. And, in the case of energy supply, there is a limit to the number of, and efficacy of, quick-fix solutions.

 A critical factor for the eastern Australia market, the NEM, is the now-rapid rundown of the gas fields in Bass Strait off the Victorian coast, a mainstay of the State’s energy needs for decades. Also of vital importance is how negotiations go with Queensland gas producers to get more supplies into south-east Australia.

The Australian Petroleum Production & Exploration Association continues to press for recognition that the best solution to the problem is to bring on new supplies of gas in onshore fields in Victoria and New South Wales – but work in the former is banned by the State government and the tortuous path of development in NSW offers no grounds for near-term confidence. Santos’s Narrabri Gas Project has been languishing in approvals limbo since 2012.

New and proposed gas projects around Australia are impacted by the ADGM, further slowing development of, and investment in, new gas projects.

For power generation in the “transition” (to net-zero), Victoria will be ground zero in the next two years, especially if the south-east of the country has to deal with two very warm summers and a cold winter in between. One factor is the capability of the brown coal-burning power stations to maintain supply – and they have faltered to an extent under high demand in the past two years – and the other is the availability of gas to bridge the gap.

The Australian Energy Market Operator has warned that Victoria – the biggest residential gas user in the country – could face shortfalls if weather drives up heating usage at the same time as there is a slump in output from wind farms or breakdowns at the coal-fired power plants. The problem affects heavy industry and other businesses as well as households, of course.

Supply gaps in the NEM may begin to emerge from 2025, AEMO says – first in NSW due to the expected closure of Eraring power station, an issue much on the mind of the new State government, and then in Victoria from 2026 because of the foreshadowed closure of two gas-fired power stations in South Australia.

One big question is when the situation will start to affect all mainland states connected on the east-coast grid as “reliability standards” are threatened from 2027 onwards. The reliability standard is a requirement for at least 99.998 per cent of forecast customer demand to be met each year.

 Market analysts note that, when AEMO underlines the now-urgent need for “firm, dispatchable and continuously available capacity to meet standards for reliable supply,” the operator is talking about gas power – and that requires both the availability of enough generation capacity and adequate supplies of fuel.

Back in February, consultant Matt Rennie of Rennie Partners told the media that it is critical to have “an adult conversation” about how gas is required to enable the task of reaching net zero emissions. It’s a point that needs even stronger underlining today.