ELECTRICITY MARKET UPDATE
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On 9 December 2022, the federal government implemented a temporary (12-month) price cap of $12 per gigajoule for gas and $125 per tonne for coal as part of a package to provide energy price relief in 2023 to east coast Australian households and businesses
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Coincidentally, wholesale electricity futures prices for 2023, 2024, and 2025 dropped sharply by roughly 20 percent. By the end of December, prices were half of what they were during the peak of the energy crisis in October 2022
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The federal government immediately pointed to the effectiveness of their price caps on lowering wholesale power prices. However, The Australian Energy Market Operator (AEMO) later noted that prices dropped through November and then again sharply in December ahead of the Albanese government’s intervention due to high renewable energy output. A greater abundance of large-scale solar and wind power meant that low cost renewable energy dictated price levels more frequently over that period, rather than gas and coal
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Despite this recent drop, current market prices are still roughly double what they were in December 2021
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Energy giant Shell has lifted the freeze on new supply deals to the east-coast gas market after the Albanese government introduced price caps; Shell's Queensland-based gas company QGC is now accepting bids for 8 petajoules of wholesale gas supply for 2023 in addition to the 20 petajoules offered since December, following warnings from the national consumer watchdog about compliance with the new price caps of $12 per gigajoule or facing fines of $50 million, as the federal government seeks to address soaring energy prices with unprecedented measures. (Read more)
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GAS MARKET UPDATE
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In December last year, the federal government implemented an unprecedented price cap of $12 per gigajoule on all east coast wholesale gas sales for 2023 in an effort to reign in skyrocketing energy prices
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In addition to the price cap, the federal government’s intervention included plans to develop a mandatory code of conduct to force producers to sell gas at “reasonable” prices to local buyers
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Shortly after this announcement, Shell and Woodside, two of the biggest gas producers on the eastern seaboard, suspended all quoting for new large-scale gas contracts to local retailers or heavy industry as they assessed the legal ramifications of the intervention
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In addition, virtually all retailers of natural gas withdrew active natural gas quotes for large businesses from the market and declined to offer new quotes. The justification retailers provided for this related to significant shortages in available gas supplies for 2023 and uncertainty regarding the effects of the federal government’s intervention
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With very few to no market offers for natural gas available to large businesses that came out of contract at the end of December, many are now facing high default rates of up to $40/GJ
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It is important to note here that retailers are exempt from the government’s gas market intervention. As the intervention relates only to the sale of uncontracted wholesale natural gas, there is no requirement for retailers to adhere to the $12/GJ cap
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Earlier this month, Shell’s Queensland-based gas company QGC notified customers it was again accepting bids for 8 petajoules of wholesale gas supply for 2023. The new supplies were in addition to the 20 petajoules it had offered domestically since December
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The competition watchdog has reduced its forecast for a gas supply shortfall on the east coast for this year, but says Queensland’s LNG exporters still have not redirected enough gas into the domestic market to head off shortages
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The ACCC said it still expected a deficit in supplies in the eastern states this year of 30 petajoules, down from 56 petajoules forecast last July.
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Despite the “shortage” in the east coast gas market, Australia has ironically ranked once again as one of the largest LNG exporters in 2022—on par with other major global producers, Qatar and the US. Australia’s ten LNG projects have a total production capacity of 88.6 million tonnes per annum (Mtpa), currently the world’s largest.
