Gas shortfall may be short-lived, thanks to growing renewables | RenewEconomy

Gas shortfall may be short-lived, thanks to growing renewables

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The anticipated shortfall in the gas market – which prompted the Turnbull government to intervene this week – may be short-lived, thanks to the huge investment in new wind and solar farms.

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The shortage may be shortlived

Yesterday we discussed the background to the physical tightness of gas in Eastern Australia and we concluded that the domestic price might not be much impacted by the proposed gas rules.

gasHowever, this conclusion is based on the view that the new Government policy will only be in effect if there is a physical shortage of gas in the market and then only to the extent of the physical shortage.

Exactly how a physical shortage is defined is not disclosed and in our view it’s almost impossible to operationalise it in a fully satisfactory manner.

For instance the “need” or “supply” of gas fired electricity generation is both price and cost elastic. If the gas was cheap enough there would be more demand and vice versa. The Government’s Press Release states

“the Turnbull Government is introducing the Australian Domestic Gas Security Mechanism which will give the government the power to impose export controls on companies when there is a shortfall of gas supply in the domestic market … If an exporter is not a net contributor to the domestic market, that is, they draw more from the market than they put in, they will be required to outline how they will fill the shortfall of domestic gas as part of their overall production and exports.

If we look at the AEMO 207 statement of gas opportunities it states

Based on advice from gas producers, overall gas production for the domestic market is projected to decline from 600 PJ in 2017 to 478 PJ in 2021, … While some fields are forecasting increases in supply, production decline is most apparent in offshore Victoria, where production is forecast to reduce by 155 PJ (or 38%) over this period.

The decrease in gas supply could lead to domestic gas shortfalls of between 10 PJ/a and 54 PJ/a to 2024. Development of new fields will be required to meet forecast demand, although the rate of exploration and development oil and gas wells recently drilled in Australia has nearly halved.3

For the purposes of GSOO modelling, AEMO has assumed that all LNG demand will be met and that GPG will be a lower priority for gas supply. In its modelling, AEMO has assumed that, if gas was unavailable for electricity generation, another fuel type (such as coal-fired or hydroelectric generation) could be substituted – an assumption likely to be increasingly challenged as the electricity supply demand balance tightens.

Based on these assumptions, forecast gas shortfalls are all related to GPG supply, in:

  • South Australia from 2019–24 (up to 37 PJ in 2021).

  • New South Wales from 2019–24 (up to 15 PJ in 2019).

  • Victoria in 2021 (2 PJ).

  • Queensland in 2030–36 (up to 54 PJ in 2035).”

AEMO forecasts will likely be revised

As we have noted several times there is much more renewable generation being built than  is generally acknowledged, something like 5GW of power and over 11.5 TWh of energy. We expect still more projects sill be confirmed.

Figure 1 New renewable supply. Source reneweconomy, ITK, CEC
Figure 1 New renewable supply. Source reneweconomy, ITK, CEC

Normally gas is the fuel that loses when new renewables enter the system due to its higher variable costs. That didn’t happen in South Australia as it’s just gas and wind, but it will in other States, particularly QLD. Gas will still be needed for power purposes but less for energy. And for gas demand its energy not power that matters.

In short, the shortfall may largely disappear.

David Leitch is principal of ITK. He was formerly a Utility Analyst for leading investment banks over the past 30 years. The views expressed are his own. Please note our new section, Energy Markets, which will include analysis from Leitch on the energy markets and broader energy issues. And also note our live generation widget, and the APVI solar contribution.

 

 

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1 Comment
  1. CaresAboutHealth 3 years ago

    A shortfall should be defined as a higher cost for domestic gas than available on the international market.

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