The east coast gas market should see sufficient gas supply for 2023, as the latest report from the Australian Competition and Consumer Commission (ACCC) indicates that previous concerns have been solved.

In August 2022, when the ACCC forecast a shortfall of 56PJ in the east coast gas market in 2023, the Federal Government took action to make sure this supply crisis didn’t eventuate.

The Heads of Agreement, secured in September 2022 with the three east coast LNG Exporters ensures an additional 157PJ of gas is made available to the domestic market before being contracted for export.

These cooperative efforts with the industry have paid off, with the ACCC now sufficiently satisfied that there won’t be a material shortfall in the eastern market for the remainder of 2023, particularly if another 3PJ is contracted to domestic users.

While the ACCC forecasts the domestic market will need an additional 11PJ in the third quarter of 2023, they note there is a surplus of 18PJ available to meet this demand and the Federal Government is confident the commitments made under the Heads of Agreement are more than sufficient to cover this quantity of gas.

This ACCC data is one of the key inputs to the minister’s consideration to not commence the notification period for the newly reformed Australian Domestic Gas Security Mechanism for the fourth quarter of the 2023/23 financial year.

“The Government understands that reliable energy supply and affordable energy prices are top of mind for Australian families and Australian businesses,” Ms King said.

“This is why we also took action with the Energy Price Relief package to take the sting out of energy price rises.

“I continue to work with the resources sector to ensure it delivers the energy and minerals needed for our own security and clean energy transformation, as well as the energy security of our trading partners. “

In the longer term, to improve the way the gas market operates, the Government will implement a mandatory code of conduct for gas companies to ensure access to gas at reasonable terms and prices.

Coal seam gas facilities across the Surat and Bowen basins in Queensland are undergoing a variety of complex scheduled maintenance work to ensure their reliable and safe operation into the future.

The facilities form part of Australia Pacific LNG’s (APLNG) gas production and pipeline systems, which play a major role in the supply of natural gas to both the domestic and international markets.

As the upstream operator of APLNG, Origin periodically undertakes planned turnarounds to enable maintenance, inspections, and repairs. The latest turnaround is being undertaken at the Condabri Central Gas Plant, near Miles.

The scope of work includes replacing compressor bundles on both low-pressure and high-pressure compressors, replacing the boiler vessel, vessel and piping internal inspections, control valve overhaul and pressure safety valve inspection and overhauls. Work at the Condabri Central Gas Plant commenced in July, with maintenance work planned to continue until April 2023 across four gas facilities across the region.

Origin’s Major Maintenance and Turnarounds Manager, Matt Blunden, said, “Turnarounds are vital because they enable Origin to catch any potential issues before they become a critical risk to people or the environment. “Planned turnarounds take months of planning and are costly, but unplanned shutdowns or outages can be even more expensive.

“Turnarounds provide an opportunity to identify and resolve any maintenance issues that could not have been fixed unless the facility was completely shut down. It also allows for thorough inspections of the equipment that would not be possible if it was in operation.

“Data from our inspections and checks enable our Integrity Engineers to analyse the condition of the plants to improve our maintenance strategies.” Mr Blunden said, “Origin has a continuous program of scheduled turnarounds across its operated assets, which include seven gas production facilities and two pipeline compression facilities.

“Turnarounds are typically delivered on a four-year cycle; however, we are currently assessing our inspection and operating data to determine if this can be safely extended to provide increased periods of safe and reliable operation.

“All completed inspections and maintenance enable compliant, reliable and safe operation of the asset through to the next cycle. “The scope of work is limited to the work that cannot be undertaken safely while the plant is in operation, unless a compelling justification is proven in terms of aspects such as risk, cost and operability of the plant and its equipment.

“Quality is planned into all activities and controlled execution ensures all work maintains the mechanical integrity required to safely shutdown and start up the plant and then safely and reliably operate it at its rated capacity.”

Crews reinstate header pipework following an earlier scope of works to remove and replace the low pressure aftercooler units via a planned plant outage

Origin’s Turnarounds Team plan and deliver the scope in a way that minimises production losses in the short term and maximises production opportunities in the coming years. The availability of other gas infrastructure within the network helps mitigate the risk of supply disruptions.

“Wet weather events like those experienced during La Niña weather patterns can present additional challenges in delivering the work,” said Mr Blunden. “When heavy rain occurs, the wetter than normal conditions can impact heavy equipment movements in the rural areas where our gas infrastructure is located.

“The softer ground conditions create ground compaction issues with cranage, and trucking materials and floodwaters can inundate low-lying road crossings. “To meet this challenge, we monitor weather conditions and forecasts closely as part of our lead up to turnaround events. We make a specific decision regarding whether to proceed if conditions are safe, or defer the event if conditions are unsafe.”

Logistics planning and personnel resourcing with COVID hygiene requirements has also provided unique challenges to manage large skilled teams to perform work across the sites.

“As local COVID waves peaked, we focused heavily on masks, separation distancing, hygiene measures, and rapid antigen testing to minimise the impact of COVID on the Execution Team and allow this important work to continue,” Mr Blunden said. “Our management approach is to ensure that everyone at work is mindful of health and safety risks.

“Before any turnaround event is approved to proceed to execution, we ensure all Health, Safety and Environment risks to people, community and environment are identified and fully assessed with approved controls. “This is conducted before each event to capture learnings from the previous events to ensure we are always learning and challenging ourselves on our controls and risk management.

“Thanks to the delivery of this vital turnaround work, we are keeping Queensland’s vital gas infrastructure compliant, reliable and in safe operation.”

Feature image: Work underway to remove and replace a gas turbine during a turnaround campaign at an APLNG pipeline compression facility. Images: Origin Energy

The Australian Energy Market Operator (AEMO) has issued the 2023 Gas Statement of Opportunities (GSOO) report, outlining whilst customer demand will be met in certain regions, some states remain under risk from short-term shortfalls and long-term supply gaps.

The GSOO found that existing, committed and anticipated natural gas production will meet customer demand until 2027 in central and eastern Australia. However, supply risks this winter remain in New South Wales, the Australian Capital Territory, Victoria, South Australia and Tasmania under certain conditions.

The report – incorporating input from gas producers and operators of gas processing facilities, pipelines and storage facilities – also reaffirms the important role gas-fired generation will play in reducing emissions and bolstering electricity reliability as the power system transitions from coal to intermittent renewable generation.

Complementing the GSOO is AEMO’s Victorian Gas Planning Report (VGPR), which provides a five-year assessment of the supply demand balance in Victoria’s Declared Transmission System (DTS).

AEMO CEO, Daniel Westerman, said the short-term gas shortfall risks and long-term supply gaps, due to declining production in southern Australia, continue from the 2022 GSOO.

“The risk of gas shortfalls each year from winter 2023 to 2026 in all southern jurisdictions remains under extreme weather conditions and periods of high gas-powered electricity generation, with those risks further exacerbated if gas storage levels are insufficient,” Mr Westerman said.

“Overall, the gas supply adequacy challenges reported in the 2022 GSOO remain, driven by the continued decline of production in the Gippsland region, along with pipeline capacity limitations, including capacity to transport gas to the southern states.

“While production capacity commitments have increased for 2023 compared to the 2022 GSOO and several key infrastructure projects are on track for delivery, there is forecast to be a 16 per cent reduction in production capacity this winter compared to 2022 in Victoria, which increases supply pressure in the southern regions.”

Committed upgrades to the Moomba to Sydney Pipeline and the South West Queensland Pipeline will increase the system’s capacity to deliver gas from Queensland to consumers in the southern regions of New South Wales, Australian Capital Territory, South Australia, Victoria and Tasmania.

In Victoria, the new Western Outer Ring Main pipeline and Winchelsea compressor duplication will increase the South West Pipeline capacity, improving the capability to use the Iona gas storage facility to supply Melbourne.

“To minimise shortfall risks, committed infrastructure and supply projects must be completed on time, while demand-side solutions, additional gas storage and pipeline development, and liquified natural gas (LNG) import terminals could potentially play a role,” Mr Westerman said.

“Investments are needed in the near term to ensure operational solutions from 2027, despite falling gas consumption.

“Existing instruments, such as the heads of agreement with LNG exporters, which includes the Gas Supply Guarantee, to offer additional gas into the east coast domestic market in 2023 will help in managing supply adequacy.”

Australia’s energy ministers announced the extension of AEMO’s powers to monitor, signal and manage east coast supply shortfalls that will come into effect for winter 2023.

These new powers will help reduce security and reliability risks in both gas and electricity markets, while protecting domestic gas consumers.

The GSOO also reinforces the increasing interdependence between electricity, gas and potential future hydrogen systems and markets in navigating the transition towards net zero emissions.

“Gas availability impacts the security of the National Electricity Market (NEM), and operation of the NEM has an impact on gas demand. The two markets are joined at the hip, what happens in one impacts the other,” Mr Westerman said.

“Gas generation will enable higher rates of renewables and support the power system against the degrading performance and impending retirement of coal generation.

“Annual gas consumption and summer maximum gas demand is expected to reduce and then flatten in the longer term. However, winter maximum gas daily demand for power generation is forecast to nearly double from 2023 to 2042, due in part to the electrification of heating.”

Looking ahead to winter in the NEM, an additional 2,000MWof new wind and grid-scale solar generation and battery storage capacity has been added in the twelve months to February 2023.

This will help offset known winter generation unavailability, including Callide C (Queensland), as well as the retirement of the remaining three generation units at the Liddell Power Station (New South Wales) in April 2023.

In addition, current inventory at the southern gas storage facilities is generally favourable against historic levels. Iona is near full capacity at 98 per cent, Dandenong is at 58 per cent and Newcastle at 24 per cent.

Dandenong storage is expected to be at full capacity prior to winter due to a recent rule change that requires AEMO to contract any uncontracted capacity, to ensure Dandenong is full prior to winter from 2023 until after winter 2025.

The ACCC has released interim compliance and enforcement guidelines for the gas industry on the new Gas Market Emergency Price Order, and explained how the ACCC intends to exercise its enforcement role.

In December 2022, the Australian Government’s Gas Market Emergency Price Order introduced a temporary price cap of $12 per gigajoule (GJ) that principally applies to gas sold by east coast and Northern Territory gas producers and their affiliates to wholesale customers in Australia. The price cap will apply for 12 months.

“Our guidelines are intended to support the gas industry with their obligations to comply with the new laws, so the country experiences the intended benefits from these emergency measures,” ACCC Chair Gina Cass-Gottlieb said.

“While our primary objective is to achieve compliance with these laws, we are ready to exercise our enforcement powers in response to any alleged contraventions, particularly if we become aware of conduct that may be intended to circumvent the price cap.”

The maximum penalty for a company that breaches the emergency price order is the greater of $50 million or three times the value of the benefit obtained, or, if that value cannot be determined, 30 per cent of the company’s turnover during the period it engaged in the conduct.

The price cap generally does not apply to supply contracts entered into before 23 December 2022 but may apply if a price provision in an agreement for supply in 2023 is varied. The price cap does not apply to sales of gas intended for international export.

The Gas Market Emergency Price Order allows gas producers and their affiliates to apply to the ACCC for a price cap exemption. Any parties that are granted an exemption will be listed on the ACCC’s public register.

As the ACCC hears from gas producers and users about their commercial negotiations with the price cap in operation, or observes matters of relevance to the operation of the new laws, it may update the guidelines if there are aspects that warrant refinement or clarification.

The Australian Petroleum Production & Exploration Association (APPEA) has responded to the guidelines, saying they do little to resolve the short and long-term uncertainties in the market.

APPEA Chief Executive, Samantha McCulloch, said the interim nature of the guidelines released this week reflected the complexity of implementing this policy and underscored its rushed nature.

“The Interim Guidelines re-enforce the disconnect between the policy and the operations of the Australian gas market in practice.

“It is clear that the new rules will make it extremely challenging for producers to continue to provide the flexibility of gas supply required by customers.”

The Interim Guidelines also leave much of the interpretation of the rules to the discretion of the ACCC, on a case-by-case basis. This includes simple questions such as when and where transport costs are included within the cap.

Ms McCulloch said the industry was committed to continuing to meet the needs of customers while adhering to the new laws.

“With up to $50 million penalties, it is entirely reasonable for the industry to require certainty of the rules under which it is being asked to operate. But the government is still writing the rule book,” Ms McCulloch said.

“To date, the government’s interventions have created uncertainty and confusion in the gas market, while delivering little or no benefit to consumers.

“The government has acknowledged that over 90 per cent of gas supply is already contracted for 2023.

“We all need a gas market that can function. The industry will continue to engage with the ACCC and the Government to try and find a workable path out of the uncertainty that currently prevails.

“As the Code of Conduct process advances, we hope that lessons will be learned from the price cap experience, where poorly conceived interventions are creating uncertainties and in turn damaging and immediate impacts on the functioning of the market to the detriment of consumers.

“The government should be taking note of the unintended consequences of these measures as it seeks to permanently regulate gas prices.”

APPEA has released its submission to the Federal Government’s consultation paper, Options to ensure the domestic wholesale gas market delivers for Australians, criticising the proposed mandatory code.

In its submission, APPEA says it is a critical time for the sector after the Australian Competition & Consumer Commission (ACCC) recently warned of gas shortfalls from 2027 and recommended new supply to avoid upward pressure on domestic gas and electricity prices.

APPEA says the proposed approach to a mandatory Code of Conduct risks doing the opposite – undermining the case for new investment and creating a supply crunch.

APPEA Chief Executive, Samantha McCulloch, said, “These are the worst possible reforms at the worst possible time for Australia’s cleaner energy future.

“These interventions will reduce investment and ultimately increase the risk of gas shortages and further price increases – the opposite of what the ACCC say is needed.

“As with the introduction of the temporary price cap – when markets froze and investment was spooked – the proposed mandatory Code risks causing maximum disruption with minimal benefit to Australians.”

APPEA has suggested three measures to guide reforms to put downward pressure on prices and avoid supply shortfalls.

APPEA argues that the principles and processes agreed in the voluntary Code endorsed by the Federal Government in September 2022 should form the basis of any mandatory Code, as it was never given a chance to work.

“The voluntary Code – agreed to after two years of good faith consultation involving industry, customers and government, and backed by the ACCC – addresses the key principles and inclusions of the proposed mandatory Code in a workable way,” Ms McCulloch said.

The industry has also recommended that the market be allowed to work given the unintended consequences of permanent price controls.

“Permanently regulating prices can’t factor in the complexities of the market and will only slash competition, distort the market and risk energy security,” Ms McCulloch said.

“This measure would see the government set the price at what they consider ‘reasonable’, with the option to change the rules at any time.”

APPEA suggests a more flexible arbitration process without any binding framework impacting business decisions.

“Sellers and buyers will not make billion-dollar decisions when the economics of their investment may be derailed by the outcome of a future arbitration process that is outside their control and can dictate when, where and how much gas is supplied, and at what price,” Ms McCulloch said.

Ms McCulloch also said the sector understood the challenges faced by businesses and consumers due to energy system pressures and was committed to delivering competitively-priced gas.

Ms McCulloch notes recent economic studies that had found intervention and price controls would drive up prices in the long-term after investment in new supply diminished.

“ACIL Allen found wholesale gas prices could rise by 40 per cent while households could face rises of up to $175 annually because investment in new supply reduced.

“APPEA and its members remain committed to working with government to find an effective, workable, and sustainable way forward that ensures sufficient supply and puts downward pressure on prices.”