Following the passing of the energy reform bill in Canberra last Thursday, end users are waiting to see when the price of gas and electricity starts to match the caps imposed in the wholesale market.
Prior to the passing of the intervention bill, end users were looking at gas deals above $30/GJ. Now a cap of $12/GJ has been imposed, what will be the offer price to gas consumers? AGL have been quoted,
“as soon as the legislation is passed, they will try to get some better offers”
The legalisation covers uncontracted wholesale gas and capping this portion of the market at $12/GJ may not see the benefits flow through to end users.
Large end users of gas have the option to procure gas from the spot market, this segment of the market is not covered by the $12/GJ cap so prices in the gas spot market are likely to be higher than $12/GJ. So, with coal prices peaking again above $300/t is there the potential for gas to now be the transitional fuel to renewables?
The war in Ukraine has influenced the transition to renewables and potentially speed the process up worldwide. European countries are now less likely to take significant volumes of gas from Russia, so they will be looking at alternative fuel sources. As a result of the gas supply issues out of Russia, some European countries are reviving their coal fired generation fleet while they transition to renewables.
While international gas prices remain high, Australian gas producers have been very vocal in leaving the domestic gas market alone and let it work as intended. They argue the gas market will fix itself, higher prices will signal the investment in new supply, resulting in lower long term energy prices.
The gas market is currently proving to be very profitable for producers at the expense of end users. A recent report from the regulators exposed that the majority of offers for 2023 gas were over $30/GJ and a report out of AEMO shows the cost of production is $9.50/GJ or below. With a potential continuation of the $20/GJ profit for gas producers they will be pushing to make gas the transitional fuel and push out the coal industry.oc
While the intervention bill is designed to be in place for 12 months, the ACCC has flagged an extension to the reasonable pricing framework saying they,
“would be expected to be required until domestic gas prices are reflective of the underlying costs of production and that there is sufficient supply at these prices”.
At Edge2020 we will continue to monitor both the gas and electricity markets to understand the impacts these market caps will have on the prices offered to end users.
Edge2020 have an eye on the energy market, enabling us to support price benefits as well as customer supply and demand agreements. Our clients rely on our experts to ensure they are informed, equipped, and ideally positioned to make the right decisions at the right time. If you could benefit from an expert eye on your energy portfolio, we’d love to meet you. Contact us on: 1800 334 336 or email: info@edge2020.com.au
