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East coast gas shortage eases but Longford outage puts pressure on prices

East coast gas shortage eases but Longford outage puts pressure on prices

A boost in gas supply has taken the pressure off the Turnbull government to pull the trigger on its export restrictions, but the market remains on edge as an outage at Victoria's biggest producer has reduced supplies for some customers and driven up prices.

The latest gas outlook from the Australian Energy Market Operator to be released on Friday said the predicted east coast gas supply shortage in 2019 had – for the moment – been averted, with no supply shortage expected before 2030 under normal market conditions.

This will provide much-needed relief for Energy Minister Josh Frydenberg, who is currently attempting to push through his National Energy Guarantee, and comes a year since Prime Minister Malcolm Turnbull declared an east coast "energy crisis".

AEMO's "Gas Statement of Opportunities" found that changed international market conditions with an over-capacity of LNG, newly committed wind and solar projects, as well as the completion of the northern gas pipeline to Queensland by the end of the year had boosted domestic gas supply for the big three states of NSW, Victoria and Queensland.

AEMO executive general manager of planning and forecasting David Swift said that with over 4000 megawatts of wind and solar coming online in the next two years, their forecasts for gas-powered generation could be lower than previously forecast.

Balance still tight

But the supply/demand balance in the Australian gas market was still very tight.

"An increased need for gas-powered generation due to weather related or contingency events could still adversely impact this forecast and tighten the supply demand balance once again," Mr Swift said.

The AEMO report said LNG exporters would be able to feed up to eight petajoules more than expected into the domestic market, which has also coincided with a boost to domestic production.

The report's findings of an increase in supply is likely to result in less pressure for the Turnbull government to enact the Australian Domestic Gas Security Mechanism, which could impose export restrictions on the $80 billion LNG industry based at Gladstone.

But the report said new gas reserves and additional gas supply infrastructure would need to be delivered to keep on top of the issue.

It comes as an unexpected reduction in production at the Esso/BHP Longford gas plant in Victoria has put extra stress on the already stretched east coast gas market during the peak winter season, sending prices in the state soaring.

Below normal levels

Output from the Longford plant, the biggest supplier for the south-eastern states, was disrupted on Wednesday night, falling by about one-third below normal levels, according to Josh Stabler at energy advisory firm EnergyEdge.

Esso has advised customers of constraints to supply, while spot prices for gas in Victoria jumped about 40 per cent. The outage has unnerved gas users, already struggling to pay prices that have surged in the past two years.

Esso confirmed the "unplanned maintenance" at Gas Plant 2 at Longford, which it said was being repaired. The plant treats gas from the offshore Bass Strait fields.

"We anticipate that this issue will reduce our supply into the east coast market by about 20 per cent on June 21-22 and by a smaller amount on June 23," an Esso spokesman said.

Mr Stabler said the AEMO held an emergency phone hook-up on Thursday morning to agree on measures to mitigate the disruption, which follows an earlier problem that affected Longford on Sunday night.

Gas spot prices in Victoria, which had been running at sub-$10 a gigajoule levels despite the cold start to winter, jumped to about $14 early Thursday before declining slightly. Prices in Sydney, which also receives gas from Longford, were still around the $9 mark.

The problem at the plant, which supplies about 60 per cent of the gas for southern markets, mirrors a disruption almost exactly 12 months ago due to a power distribution fault that also drove up prices and exposed the fragility of gas supply in the south.

Financial Review

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