Ukraine adds to uncertainty of future gas

CANBERRA, AAP – Gas is expected to play a critical role for the generation of electricity as the grid weans itself off coal.

But the Ukraine conflict is adding to short-term uncertainty on LNG supply and longer-term needs are becoming less clear, the Australian Energy Market Operator says in its annual gas update.

The federal agency notes increased uncertainty in international energy markets following the European energy crisis in the northern hemisphere winter of 2021-22 and Russia’s invasion of Ukraine.

“The push in many countries to diversify away from Russian gas may affect Australian LNG exports as well as potential access to LNG imports,” the operator says in the 2022 Gas Statement of Opportunities (GSOO) released on Tuesday.

Demand for the floating storage and regasification units needed to access imports adds more risk.

There is also greater uncertainty about longer-term needs, and annual gas consumption is expected to fall as Australia moved to net zero emissions by 2050, AEMO says.

It also warns of possible gas shortfalls in extreme weather conditions in NSW, Victoria, Tasmania and the ACT from winter 2023 because “insufficient customer contracts” have delayed the development of the Port Kembla terminal and pipeline.

A gas plant and pipeline from the Golden Beach gas field for the Victorian Transmission System was also intended to address short-term risk of gas supply shortfalls, but the latest advice to AEMO is that the GB Energy project will not be available before winter 2023.

Various scenarios in the report now assume stronger electrification than a year ago as consumers switch from gas to electricity to cut emissions and as more renewable energy enters the grid.

“The future path for gas is uncertain, as the pace of the transformation and its influence on the gas system is not yet clear,” AEMO says.

The gas report covering eastern and southeastern Australia aims to help organisations make decisions about investment in pipelines and other infrastructure.

As coal power generation is phased out, gas generation is projected to support variable renewable energy generation, particularly during extreme demand to avoid blackouts.

But as the gas sector identifies pathways to decarbonise, there may be a greater role for alternative fuels such as hydrogen, biogas and other LNG equivalents, the operator says.

In the “step change” scenario that stakeholders consider most likely, existing, committed and anticipated supply – including anticipated LNG imports – is forecast to meet declining domestic gas consumption until 2033.

A slower energy transition would result in gas consumption closer to historical levels, while the “hydrogen superpower” scenario assumes hydrogen becoming significant for export and domestic energy.