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Energy market operator, AEMO, intervenes as Victoria's gas reserves fall

AEMO is intervening after gas reserves at a facility in Victoria's south-west caused concern. (Pixabay)

The Australian Energy Market Operator (AEMO) has stepped in to stave off a potential gas shortage in Victoria, the state's energy minister has said.

Victorian Energy Minister Lily D'Ambrosio told ABC Radio Melbourne that the AEMO triggered the gas supply guarantee on Tuesday afternoon, as reserves at a storage facility in the state's south-west continued to fall.

"That means they'll have greater visibility of the sale and supply of gas across the market including Victoria but in other states, to get some transparency here," she said.

"When you've got greater transparency in the market, the market starts changing its behaviour, and frankly, the market has been able to get away with too much here.

"More visibility should mean, as it did in April [when the guarantee was last triggered], that gas goes to where its needed."

An AEMO spokesperson said the triggering of the mechanism means New South Wales will get its gas supply from Queensland instead of Victoria.

On Monday night, the AEMO sent industry participants a warning that gas reserves at the Iona storage facility near Port Campbell were low.

"Depletion of gas at the Iona storage facility is posing a threat to the secure operation of Victoria's gas system if it keeps emptying at the current rate," AEMO said in a statement.

The market operator said it would intervene if the depletion of reserves did not slow.

New South Wales will get its gas supply from Queensland instead of Victoria as storages run low. (ABC News: Brendan Esposito)

A similar warning was issued to industry participants on July 11.

Victoria currently has a price cap on wholesale gas, which is preventing household consumers from being hit with huge gas bills, but is also not providing incentive to cut back on usage.

The regulator said it expected the gas supply guarantee to remain in effect until 30 September or "until gas supplies are sufficient" and Iona's gas reserves were back to normal.

The Australian Petroleum Production & Exploration Association, which represents gas companies, said the guarantee was only a short-term measure and the "real" answer was investment to bring more supply into the market.

"The causes of the pressures are coal outages, relatively low levels of renewable power generation due to the weather, a colder winter increasing power demand on the east coast and global market pressures arising from the Russian invasion of Ukraine," acting chief executive Damian Dwyer said.

"This has all caused a huge increase in demand for gas."

Gas supply problems 'driven by greed'

Ms D'Ambrosio said Victoria had more than enough gas supply to meet demand, and that the price cap would not be removed.

"A lot of this is driven by greed across gas producers. They will follow the dollar, and we're about protecting consumers, making sure that they pay no more than what is deemed to be a fair price and that's why that price cap is there," she said.

Lily D'Ambrosio says Victoria's problems are being driven by greed from gas producers. (Channel 9)

Victoria had been supplying gas to New South Wales, to meet unprecedented demand over winter.

Victorian Opposition Leader Matthew Guy called for tougher limits on the export of gas out of Victoria.

"Gas out of Victoria, there should be a domestic reserve figure placed on that," he said.

Gas plant operator says supply issues 'increasingly tighter'

Lochard Energy, which owns the Port Campbell facility, said it was operating "effectively and in the manner for which it was designed".

The company said customers of the Iona storage plant, mainly energy retailers and industrial users, put gas into storage during low demand periods and then withdraw it when demand rises, such as during winter.

"It is expected that Iona's customers generally withdraw most of their gas in storage during winter and refill once the season has passed each year," the company said.

"We are currently at the point of peak winter demand and high withdrawals from Iona are to be expected.

"The current levels of inventory are broadly in line with expectations given the purpose of the facility."

The statement from Lochard Energy said it was one of the main facilities used to manage energy needs in Australia's eastern states.

"It is the case that gas supply and winter peaking are becoming increasingly tighter on the east coast," it said.

"This year, unplanned coal fired generation outages and especially cold winter weather have led to Iona customers starting to withdraw gas from storage earlier and in larger quantities than usual.

"Customers are in control of their own inventories and able to manage their own supply and demand, and Iona supports them to do this."

The company said the storage plant was due to be expanded in 2023, and in the meantime it was working with AEMO and its customers to manage supply.

Last month, AEMO intervened to suspend Australia's east coast energy market after days of volatility put several states at risk of blackout.

It was the first time in its history that AEMO had made such an intervention, backed by the federal government which acknowledged the energy market had effectively failed.

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