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By Sonali Paul
MELBOURNE, March 8 (Reuters) - Australia faces a gas crunch from 2019, raising the risk of power blackouts from a shortage of gas-fired generation and gas supply cuts if no action is taken, the country's market operator said on Friday.
The warning comes after a string of outages and electricity price spikes in Australia's eastern states over the past year that have highlighted the need for gas-fired generation to shore up power supplies.
"We're going to see security of both systems, gas and electricity, become more challenging," Mike Cleary, chief operating officer of the Australian Energy Market Operator (AEMO), told Reuters.
More gas-fired plants will be needed to beef up power supplies as they can raise and lower output more quickly than coal-fired plants as a back-up for wind and solar when the wind isn't blowing and the sun isn't shining, the AEMO said in its annual gas outlook.
However the need for more gas for power has arisen just as three new liquefied natural gas (LNG) export plants have opened in the northeast, tripling gas demand and drawing supply out of the domestic market.
While gas goes for export, the AEMO projects production for the domestic market will drop from 600 petajoules (570 million MMBtu) in 2017 to 478 PJ in 2021.
That will result in a shortfall of gas supplies to homes, businesses and industry of between 10 PJ a year to 54 PJ a year between 2019 and 2024, or it could result in electricity supply shortages of between 80 gigawatt hours and 363 GWh between 2019 and 2021, the AEMO said.
To encourage new supply, gas and power prices will inevitably rise.
"We're going to see gas-fired generation increase demand (for gas) and we're going to see an impact on price," Cleary said.
The AEMO said options for dealing with the shortage include diverting a small amount of gas away from LNG into the domestic market, increasing output from existing fields or developing new gas fields.
However developing new fields by 2019 will be a challenge, as the state of Victoria has just approved a moratorium on conventional gas drilling onshore until 2020, while several other states have limited fracking of unconventional gas.
A coal seam gas project proposed by Santos, called Narrabri, could alleviate all of the gas shortfall if it starts producing by 2020, the AEMO said, but that project faces a lengthy approval process amid strong local opposition.
Reporting by Sonali Paul; Editing by Richard Pullin