March 27, 2019 / 1:05 PM / 25 days ago

Australia's east faces gas shortage from 2024, market operator warns

* Gas shortage looms as Gippsland Basin supply drops

* Pipeline expansions from Queensland needed

* LNG import terminals could boost supply

By Sonali Paul

MELBOURNE, March 28 (Reuters) - Australia will face a gas shortage from 2024 unless new reserves are developed, pipeline capacity is increased or eastern states start importing liquefied natural gas, the country’s energy market operator warned on Thursday.

The Australian Energy Market Operator’s (AEMO) annual gas outlook was more dire than in June last year, when it forecast no shortage before 2030. Since then, companies have cut reserve and production estimates, AEMO said.

In the near term, government pressure on three liquefied natural gas (LNG) exporters in Queensland, led by Royal Dutch Shell, Origin Energy and Santos, to boost gas supply to the domestic market has succeeded in averting potential shortfalls, AEMO said.

“However, southern Australia’s overall supply-demand balance for 2021-2023 remains very finely balanced, reflecting the ever-tightening integration of Australia’s electricity and gas markets,” AEMO’s chief system design and engineering officer Alex Wonhas said in a statement.

Longer term, as gas output dwindles in the ageing Gippsland Basin fields off Victoria, which have long fed demand centres in Melbourne, Sydney and Adelaide, more gas will be needed from Queensland in the north or LNG will have to be imported.

Victoria’s ability to supply New South Wales, South Australia and Tasmania is expected to drop from 150 petajoules (PJ) a year currently to just 23 PJ in 2023, AEMO said.

To fill that gap with gas from Queensland, pipeline capacity would have to grow, it said.

The key uncertainty in all the forecasts is demand for gas in power generation, which is hard to predict as it is highly dependent on weather, the speed of development of solar and wind farms, and outages at coal-fired power plants, AEMO said.

While demand for gas-fired power has been falling, AEMO said that could reverse as more coal-fired power plants shut. AGL Energy has flagged it will close its Liddell coal plant in 2022.

“The gas supply-demand outlook is finely balanced by 2023, just after the closure of the Liddell coal-fired power station,” AEMO said.

The report highlights the potential need for LNG imports, with five projects in New South Wales, Victoria and South Australia on the drawing board.

“Continued interest in LNG import terminals ... would be expected to help relieve pressure on meeting southern gas demand during peak periods and assist in reducing pipeline constraints, but may do little to ease gas pricing pressures,” AEMO said.

Reporting by Sonali Paul; editing by Richard Pullin

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