Australian energy market operator activates gas supply guarantee amid problems with Iona gas storage

The national energy market operator activated the gas supply guarantee for only the second time to save Victoria from a looming gas crisis.

Australia’s Energy Market Operator (AEMO) announced Tuesday night that it has ordered Queensland suppliers to send gas to New South Wales, preventing the Sunshine State from selling it overseas.

This means New South Wales will be getting its gas from Queensland, not Victoria, as the southern state struggles with record low supplies at its Iona gas storage facility in Port Campbell.

“Producers and the pipeline operator reacted positively to the request for additional gas supplies. AEMO will continue to work with the parties to understand the availability of gas supplies,” AEMO said in a statement.

“The difficult power generation conditions that have been observed since the beginning of June continue in the national energy market. This has resulted in a greater reliance on gas generation and a larger-than-forecast reduction in stocks at the Iona gas storage facility in Victoria.

Market participants are responding to requests and guidance from AEMO to maintain the safe operating condition of the Victorian gas system.

“AEMO expects that the gas supply guarantee and threat to system safety mechanisms should remain in place until September 30, 2022, or until gas supplies are sufficient and the threat to gas supply caused by the depletion of the Iona storage has subsided.”

The gas supply guarantee came after AEMO issued two notices of a system security risk due to low supplies at Iona.

In the first notice, dated 11 July, market participants were told to stop buying gas from the Victorian Domestic Wholesale Gas Market (DWGM) in an attempt to reduce the depletion rate at Iona.

Although the request was granted, Iona’s gas supply continued to fall, prompting AEMO to issue a second system threat notice on Monday prohibiting purchases from DWGM for power generation.

Iona owner Lochard Energy attributed problems at the facility to unplanned outages and low winter temperatures.

“Lochard Energy notes recent AEMO statements notifying members of a system safety hazard in the announced transmission system due to the low inventory of Iona underground gas storage,” the statement said.

“We understand the pressure on energy supplies on the east coast of Australia, but note that the Iona gas storage facility is operating efficiently and as intended.

“This year, unplanned coal-fired outages and particularly cold winter weather have resulted in Iona customers pulling gas from storage earlier and in larger quantities than usual.”

AEMO said that Victoria’s gas supply was unaffected at this stage.

But market operator chief executive Daniel Westerman acknowledged that gas and energy are in a “fragile position” when speaking Tuesday at a clean energy summit.

“At AEMO, I feel like we’ve been in the midst of a storm lately. Our employees are under constant stress as we work to keep the lights on and gas around the country around the clock,” he said.

“The situation with both gas and electricity remains volatile and many risk factors still remain.”

Damian Dwyer, Executive Director of the Australian Oil and Exploration Association, said more investment is needed in the gas industry.

“Gas supply guarantee is a short-term measure. The real and sustainable answer is more investment to increase supply in the market.”

The low level of renewable energy and the increased demand for electricity in the winter are attributed to the problem, as well as pressure on the global market due to the Russian invasion of Ukraine.

The gas supply guarantee was first introduced back in June, while the cap price of $40 per gigajoule remains in effect for Victoria.

Originally published as Australia’s national energy market operator launches gas supply guarantee