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Longford disruption ups pressure on east coast gas as prices spike

The biggest domestic gas production plant on the east coast suffered another disruption to production over the weekend, triggering a fresh spike in prices and increasing nervousness about supply security in the southern states for the rest of the winter.

The Longford gas plant in Victoria, owned by ExxonMobil and BHP, suffered a reduction in production of about 30 to 35 per cent for more than a 24-hour period on Friday-Saturday due to technical problems, according to energy market adviser Energy Edge. Output at the plant was already running below par due to a separate technical issue.

The latest disruption triggered a spike in the Victorian wholesale gas price to $39.99 a gigajoule on Saturday afternoon, about six times the average of earlier this year. The spike was the latest of several surges in prices over the past two weeks amid a confluence of events, including increased demand for gas for power generation due to the Callide coal plant outage, technical problems at Longford and cold weather, which increases household demand.

“The energy market has been relentless since the failure at Callide C on May 25,” said Josh Stabler, managing director at Energy Edge.

“The list of unplanned outages in both gas and electricity continues to grow, and each event consumes a bit more of the market resiliency ahead of the next inevitable crisis.“

In Victoria, generation at EnergyAustralia’s Yallourn coal power generator is also still being disrupted by flooding that has hampered coal supply from the local mine, while industry sources say the Iona gas storage plant is getting close to its minimum storage levels after being called on for supplies more heavily than normal in recent weeks.

The spiking gas prices as a result of the disruptions have hurt those manufacturers that are exposed to the spot market rather than getting gas on fixed contracts, and has also pushed up wholesale power prices.

The electricity market also remains volatile and subject to shortages in reserve capacity during the morning and evening peak-demand periods when solar generation is not running. The Australian Energy Market Operator has advised of a potential shortage of generating reserves in both NSW and Queensland for Monday evening.

According to Energy Edge, gas production at Longford fell by 200 terajoules a day due to reported issues with the gas dehydrators from about 3pm on Friday until about 9pm on Saturday, meaning output fell about 300 terajoules short of planned capacity.

A spokesman for Exxon’s Esso Australia subsidiary said on Sunday that work by maintenance crews allowed the plant to steadily resume full production and that supply into the east coast market has returned to full capacity.

“We have worked closely with AEMO and our customers to minimise any potential disruptions,” the spokesman said.

He added that almost all of Esso’s domestic customers are on long-term contracts and therefore are not impacted by spot prices linked to international gas prices.

But the spokesman also pointed to the need for more depth of supply options to prevent the impact on the wholesale market.

“Recent events across the domestic energy market show the importance of having multiple supply sources to ensure system reliability and avoid customer disruptions,” he said.

Mr Stabler said the reduced production was the equivalent of one quarter of the 1175 terajoules consumed by the Melbourne retail gas market for the impacted hours and was managed through a combination of additional supplies from Iona, the Culcairn interconnector between Victoria and NSW and “a very important and understated role” by gas pipeline owner APA Group, which made gas available from within its pipelines.

He said the timing of the outage at Longford was particularly unfortunate as the facility was planning to return from the recent partial outage back to full capacity of 985 terajoules a day from Monday.

“With another cold week of weather ahead, the test of the market is set to continue,” Mr Stabler said.

Source: Financial Review