Storage of gas for domestic consumption has become central in securing the National Electricity Market this week with the Australian Energy Market Operator issuing a second Threat to System Security market notice yesterday.

 

Speaking today at the Clean Energy Summit AEMO CEO Daniel Westerman said "depending on the industry response, we'll decide what further steps we might need to take". 

 

He explained the background to lowering storage levels across the eastern states, which have been on the wane since April and are at far, far lower levels than just two years ago. 

 

"A cold snap in NSW and Victoria in late May and early June brought a sharp increase in demand," he said.

 

"East coast gas supply and pricing was already under pressure: peaking at $55 / GJ in mid-May in Victoria, up from the first quarter east coast average of $10.

 

"More LNG was being exported from Queensland, which meant lower flows to southern states, and therefore greater flows north out of Victoria.

 

"Gas storage was already rapidly depleting, before winter started.

 

In addition floods in the New South Wales Hunter Valley had cut off train links to transport coal to ports and power plants. 

 

In late May and early June, coal outages drove 50% more gas into the national electricity market, driving prices up so high the market operator has kept them capped at $40 per gigajoule ever since. 

 

The price cap, four times historic gas prices, was put in place to avoid possible spot prices of a near-unbelievable $800/GJ. Companies have already gone out of business as a result of $40/GJ prices. 

 

Meanwhile gas storage facilities across the east coast have been in decline for years and all are at significantly lower levels now than a year ago. The only exception is the Iona plant in western Victoria, which is holding incrementally more gas than a year ago but is still low. 

 

A year ago the Victorian gas spot price ‘soared' to $20/GJ, a then five-year high, thanks to higher winter demand for heating and a processing train, the Longford domestic gas processing plant being knocked out.  

 

 

"Generally gas storage isn't a big deal in Australia although it had crept up the list of concerns in recent times," Grattan Institute energy lead Tony Wood told Energy News. 

 

‘Since April 2022, all regions in the NEM have risen substantially as coal supplies became constrained in combination with rapid increases in the international coal prices as well as increased scheduled maintenance and forced outages due to missed preventative maintenance during COVID restrictions," Energy Edge CEO Josh Stabler wrote in a note last week. 

 

"While gas storage is low (10PJ at Iona), the concerns on security will rise if continuous gas powered generation is called upon. The largest threat to that is a sharp downturn in the dispatch at the largest coal generator in the NEM, Eraring," Stabler told Energy News.

 

"Eraring lost deliveries by rail for 5th to 14th July and was reliant on unreliable local coal supplies and has been consuming their coal stockpiles."

 

"We are still looking at high energy prices but so far, we have maintained secure supply."

 

Data from the Australian Energy Market Operator shows all facilities' holdings are on the wane; every graph is heading south and even those that are typically seasonally up and down show July levels at particular lows. 

 

Iona's July gas storage levels two years ago were closer to 17,000TJ and the same in 2019. They now stand at 9860TJ, or just 42%. 

 

Moomba has been on the decline since January 2019 from 25,000TJ to 12,000TJ now. 

 

Newcastle has something like just 23TJs (less than a third of the nameplate capacity of the troubled Orbost gas plant) from an April 2021 high of 1500TJ

 

Roma Underground Storage is at 26,000TJ, also its lowest level and Silver Springs holds 16,000TJ. Both are being used as production facilities and "heading lower" according to Stabler. 

 

Percentage-wise this works out at Newcastle at 0%, Dandenong at 47%, Iona at 49%, Roma at 48%, Silver Springs at 35% and Moomba at 17%. 

 

A year ago Newcastle was at 48%, Dandenong 47%, Iona 48%, Roma 70%, Silver Springs 43% and Moomba 22%. 

 

Two years Newcastle held 73%, Dandenong 97%, Iona 72%,Roma 76%, Silver Springs 48%, and Moomba 28%. 

 

The Dandenong LNG storage facility is lower after it was recently drawn down by AEMO as an emergency response measure and not replaced by companies. 

 

Some of this is being offset by a better-than-average performance from the Longford production plant, operated by ExxonMobil. 

 

However a worst case scenario has a second problem: pipeline capacity. This was first brought to the fore June 2, when Santos chief Kevin Gallagher told a press conference the South West Queensland pipeline was at capacity and no more gas could head to market. 

 

June 2 was anomalous; spare capacity was available just days after but it showed the volatility in a tricky market in flux. 

 

"The tyranny of distance becomes the issue. Surat to Moomba to Melbourne is the equivalent of Moscow to London to Rome,"  Stabler said. 

 

"There are too many bottlenecks to deliver substantially more gas into Melbourne or Sydney during winter.

 

"Levels are currently lower because of the rapid demand for gas powered generation - up 55% in the NEM in May - caused by coal-fired plant outages and lower renewable generation," a spokesperson for petroleum lobby APPEA told Energy News. 

 

"We envisage these storage facilities will be replenished under normal arrangements going forward."