By Sonali Paul
MELBOURNE, Dec 8 (Reuters) - Eastern Australia could be short of natural gas starting in 2018 due to a sharp rise in liquefied natural gas (LNG) exports that would draw supply from the domestic market, the national market operator said on Thursday.
The potential gas supply crunch may slow Australia's push to cut carbon emissions or result in a sharp jump in power prices. Increasingly expensive gas-fired power, cleaner than power from coal, will be needed to supplement wind and solar until large-scale batteries for storing renewable energy become affordable.
"Gas powered generation growth is expected to stretch available domestic gas supply, with the greatest supply challenge between 2018 and 2024," the Australian Energy Market Operator (AEMO) said in its annual gas forecast.
Annual gas demand in eastern states is expected to jump 24 percent to 1,972 petajoules (pj) - 52 billion cubic meters - over the five years to 2021, rising to 2,076 pj by 2036, AEMO said.
AEMO warned that forecasting is difficult, however, as the power market is evolving rapidly, and gas and power price increases could lead manufacturers to shut operations and cut demand for gas and power.
With LNG exports from the eastern state of Queensland projected to soar 42 percent from 2016 to 1,430 pj by 2021, the eastern Australia regional market could be vulnerable to sharp price moves, AEMO said.
"The domestic gas sector in eastern and south-eastern Australia is now linked to a more volatile world market for gas through our LNG export industry," AEMO Chief Operating Officer Mike Cleary said in a statement.
Despite the supply constraints, the states that are most dependent on gas for homes and industry, Victoria and New South Wales, have banned or limited development of onshore gas resources due to opposition from farmers, communities and green groups. report reinforced calls by the petroleum industry for the states to rethink those bans.
"The information released by AEMO today is also another sobering reminder that the east coast needs rapid development of new gas reserves to guarantee supply," Australian Petroleum Production and Exploration Association chief executive Malcolm Roberts said in a statement.
The Australian government is also reviewing national energy policy in the wake of a state-wide blackout in South Australia in September triggered by a freak storm. Australia state relies on wind and solar power for 40 percent of its energy, which has led to the shut down of coal-fired plants that could no longer run profitably.
Gas and coal-fired power from neighbouring Victoria state have been key to supplementing South Australia's power.