Australia must boost investment to avert gas shortages in southern states: AEMO

New investments in Australia's central and east coast gas markets are required to address forecast supply shortfalls in the southern states, the Australian Energy Market Operator, or AEMO, said in a report March 20.

Australia is among the world's largest LNG exporters. In the past, the government has implemented steps to intervene in the domestic market to avert supply shortages, with such moves sometimes creating uncertainty among its overseas LNG customers.

The risk of peak-day shortfalls and seasonal supply gaps in the southern states is expected to arise from 2028, with annual supply gaps emerging from 2029, when production from existing, committed and anticipated projects in the southern states is forecast to fall 32%, requiring new supply investment, the AEMO said in its annual Gas Statement of Opportunities (GSOO) report.

"Investment could include new production, storage, transportation, and liquefied natural gas (LNG) regasification terminals, or a combination of these solutions," AEMO CEO Daniel Westerman said in a statement accompanying the report.

"Flexible gas-powered generation will remain the ultimate backstop in a high-renewable power system," Westerman said, adding that gas, alongside batteries and pumped hydro, will enable higher renewable penetration and ensure reliable, stable supplies as coal-fired power stations retire.

AEMO's latest projections show annual gas demand for power generation more than doubling between 2025 and 2044 in its Step Change Scenario, and peak day gas demand for electricity almost quadrupling.

The temporary extension of the operating life of the Eraring Power Station in New South Wales to August 2027 reduces forecast gas consumption for power generation, compared to previous forecasts that anticipated the plant closing in August 2025.

Eraring has historically provided about 15,000 GWh/year of electricity. However, the age of the facility poses a risk that past levels of performance may not be achievable in the future, the AEMO said.

"As Gippsland supply continues to decline and production facilities at the Longford Gas Plant are decommissioned, southern regions will be exposed to increased risk if either unscheduled production interruptions occur in southern states that reduce supply capacity, or low VRE [variable renewable energy] conditions or coal generator outages increase the GPG [gas-powered generation] demand," it said.

Meanwhile, various interventions have been established to support gas adequacy in Australia's East Coast Gas Market (ECGM).

"These actions, however, are unlikely to be sufficient to address longer-term gaps in supply without investment to provide access to new gas supply," the AEMO said.

While firm commitments from east-coast LNG exporters are needed to supply southern markets during winter, Northern gas producers provide critical support to keep domestic users adequately supplied.

LNG producers control around 70% of total proven and probable (2P) reserves in central and eastern Australia, and volumes of gas exported internationally via Curtis Island in Queensland represent around 75% of annual consumption in the ECGM.

Production of gas from Queensland and the daily and seasonal operation of these facilities will have a growing impact on domestic supply adequacy as southern production declines, the AEMO said.

The development of anticipated supplies in northern regions will only maintain sufficient supply until 2028, it said.

From 2029, uncertain supply developments will be required to satisfy northern demand, LNG exports and support southern demand. In total, up to 200-500 petajoules a year (PJ/y) of new northern supply -- above committed and anticipated projects -- is expected to be required during the period to 2044 to meet forecast LNG exports and domestic demand, making it critical for LNG producers to support flows to southern regions to mitigate risks of shortages, it said.

Associations welcome gas focus

The GSOO has reaffirmed the important role of natural gas in ensuring reliable electricity, Australian Energy Producers Chief Executive Samantha McCulloch said in a separate statement on March 20.

This week's announcement of an investment by Gippsland Joint Venture partners Woodside Energy and Esso Australia to boost domestic gas supply has contributed to the GSOO's improved supply outlook, but more supply projects are urgently needed, McCulloch said.

There is also "no room for complacency" if the east coast is to avoid shortfalls, she said, adding that collaboration between different stakeholders including governments, regulators and the industry was vital to remove regulatory barriers to new gas supply and boost investments to avoid shortfalls.

The Australian Pipeline and Gas Association welcomed short-term improvements in the east coast gas system, the APGA said in a separate statement March 20.

"Recent midstream gas sector announcements are creating breathing room for long-term policy reform, but this opportunity cannot be wasted," it said.

The GSOO report makes clear there is limited redundancy in place to manage unexpected events such as colder-than-average winters, coal plant outages, or energy shocks like the 2022 Russian invasion of Ukraine, the APGA said.

"We must avoid backing ourselves into a corner where coal becomes the default fallback," APGA Chief Executive Steve Davies said.

He also emphasized that structural reform must be delivered without delay to avoid further cost pressures and instability.