AER’s State of the Energy Market in 2023

The AER released their annual ‘State of the Energy Market’ report last Thursday for 2023 for Australia’s electricity and gas markets. This included some relatively good news as the energy system in 2023 has “experienced fewer shocks and better outcomes than in 2022”. The 2023 wholesale electricity market prices have declined from the record prices in 2022, largely due to the government interventions in the coal and gas markets. Despite the decline, prices remain high by historical standards.

A media release by the AER accompanying the report stated, “Increases in wholesale energy prices were evident in retail prices, with estimated electricity bills rising between 9% and 20% in all NEM jurisdictions in 2022-23, impacting households already experiencing broader cost-of-living pressures. “

The report highlighted the pressures for investment in renewables to permit the retirement of coal generation. The report also commented on Liddell’s retirement in April 2023 going smoothly due to the new renewable generation and recent favourable market conditions.

The transition to new energy infrastructure faces several challenges:

  • The vast scale and required coordination of investments.
  • Rising costs in the infrastructure sector.
  • The need for community engagement in infrastructure planning and development.

The report highlighted the government involvement and support in investments including joint initiatives between Australia Government and state and territory governments.

The dynamic between electricity and gas markets is increasingly interconnected. As regions shift from gas demand to electricity demand (like replacing gas heating with electric air conditioning), it’s anticipated that pressure on gas markets will decrease, while electricity demand will surge. Factors like electric vehicle adoption will further influence electricity demand and the necessity for new infrastructure.

Furthermore, planning will now also factor in emissions reduction to serve the long-term interests of energy consumers, integrating it with other goals such as price, reliability, and supply security.

An interesting comment was made in the report executive summary highlighting concerns in the industry surrounding issues of competition in the market and market power outlined below.

“Our concerns are around the reduced liquidity of exchange-traded hedging products, the declining number of clearing service providers for electricity derivatives, and the levels of concentration of ownership of flexible generation capacity, particularly in NSW and Victoria. The AER’s anticipated new powers in relation to contract market monitoring will allow us to better monitor participant behaviour and gain sharper insights on issues of competition and market power.”

Federal Budget 2023 – A shock to the Gas Industry

Australian Parliament House

Under a tightly embargoed budget speculators and hedgers alike could be forgiven for worrying the 2023 Federal budget hid an unknown shock, on top of a Liddell closure, Bayswater trip and extended outages. Last week’s market uncertainty was definitely not dampened by the little information coming out of Hon Dr Jim Chalmers MP’ office.

However, there was good news to be had, in contrast to the October 2022 budget which forecast a deficit of $36.9bn for this financial year the Hon Dr Jim Chalmers MP was almost giddy to announce a surplus of $4bn, it is the first in 15 years, yet is everything that glimmers actually gold?

Little was made of the fact 20 per cent of the surplus came from increased commodity prices, a nod was made to the Ukraine crisis but little to the other drivers and opportunist behaviour which has been within our market for the past 12 months. There was certainly no mention of the huge windfalls the treasury gained from the commodity industry.

The Gas and Coal caps were mentioned but there has been no discussion of the Coal Cap either being extended or removed in December 2024 when it expires. In contrast, the Gas cap has been confirmed to remain until 2025 and as such the potential for a market move in the summer months is still possible.

Overall, the budget was light on Energy for large business, the most focus was on infrastructure for Electric Cars and cost of living relief for residential and small businesses. The creation of a National Net Zero Authority was predicted under the Chubb review and therefore no shocks were seen.

There was a slight nod to a new Hydrogen head start program, giving $2bn to the scheme and more investment in green industry, which was unsurprising. A curious section was on a Capacity Investment Scheme “unlocking over $10 billion of investment in firmed-up renewable energy projects up and down the east coast” as a throw away comment and I am sure a few more details will emerge over the next few days – this one did pique my curiosity.

Undoubtably in the commodity space the biggest losers this evening were the Gas companies, between the extension of the Gas cap at $12/GJ into 2025, increased taxes due to the extraordinary market conditions would follow, but a second stab at the inflated pie has come in the form of the Petroleum Rent Resource Tax. I think its mention was all of 3 seconds of the budget, yet this piece of legislation will increase the government coffers to the tune of $2.4bn over the forward estimates. On top of the Safeguard mechanism changes and power the greens had in ensuring many new gas projects do not get off the ground easily if at all, this is yet another cost to the industry. Yet in comparison to those enforced overseas, and especially in the UK, this was light touch, and it will be interesting to see if it is strengthened at all by the Greens, whom Labor will need to pass this through the house.

Overall, not a great deal of shock waves this evening, a budget which I am sure will be picked apart and a barrage of “inflationary pressures” will be dissected, yet overall, no real change to the status quo. Looking down the barrel of economic growth slowing to one and a half per cent in the next financial year, coupled with increasing wages it’s not the time to be throwing about cash, however hitting industry for half baked wins for those at the other end of the scale may not be enough to make any new friends and certainly could lose this government more.

Possible extension to the gas caps

Image of Gas Stove

It is likely today that the Climate change and Energy Minister Chris Bowen will announce an extension to the $12/GJ cap on wholesale gas. Currently the gas caps will expire at the end of the year. Following the release of the draft mandatory code of conduct the market will have several weeks of consultation.

Energy producers are likely to be concerned over an extension or possibly permanent changes to the wholesale gas. Energy producers will also be concerned that changes will impact the pricing of long-term deals as it is likely a reasonable pricing clause will be included.

Under the reasonable price provision, gas companies could only charge a price based on the cost of production plus a reasonable margin. The reasonable price does not consider the capital invested during exploration and development of projects. Gas buyers will be able to challenge the price of contracts via a formal dispute process. The dispute process is designed to determine what the ‘reasonable’ price should be.

While the extension to the cap mechanism will provide certainty for energy users, energy producers remain in a holding pattern.

Gas producers are not finalising new gas supply contracts for 2024 until the government confirms what the impact of the code will have on pricing.

The federal government have also set the expectation that the federal budget will include a Petroleum Rent Tax. The Australian Petroleum Production & Exploration Association (APPEA) have shared with its members concerns that changes to the taxing of gas producers will add $100B of tax receipts to the government.

To appease the gas production sector, it is expected the new code will allow for exemptions. New projects that add supply for domestic use may qualify for exemptions from any specific pricing provision.

APPEA said the code “must recognise the importance of gas in a cleaner energy future, and the need to ensure settings which enable investment in new supply to avoid forecast shortfalls and put downward pressure on prices”.

Gas industry developers continues to warn the broader industry that deterring investment in new gas supply will harm the supply to manufacturers and reduce the secure of supplies of electricity across the NEM.

Beach Energy’s chief executive has said that getting the terms of the code wrong could imperil Australia’s transition to low-carbon energy given the role gas plays to support renewable energy.

At the end of the day changes to the industry need to benefit producers, end users and ensure gas and electricity security is achieved. While international cost pressures are impacting the gas and electricity industry. The continued development of gas resources are required to provide gas the opportunity to be the transitional fuel as Australia strives to its Net zero emission targets.

Dispute over forecasted supply “gap” in East Coast gas market


AEMO last week released a report which forecasted a supply “gap” on the east coast gas market of up to 33 petajoules on assumptions that the three Queensland LGN ventures exported all their uncontracted gas this year. The report warned of a risk of a gas shortfall in the southern states this winter unless the LNG exporters in Gladstone diverted shipments from export to domestic customers.

Santos’ GLNG joint venture has spoken out against the winter gas shortfall forecasted by AEMO saying that Queensland’s three LNG ventures have committed to make available all the domestic gas expected to be needed this year. AEMO’s forecast did not account for the ventures move to supply an additional 100 terajoules a day of gas this winter.

The joint venture said it had sold more than 15 petajoules of gas to wholesalers, retailers and power generators which will deliver gas between May and September “to alleviate critical peak winter demand in east coast gas and electricity markets”.

GLNG also said AEMO’s data was based on forecasts and the other two Queensland LGN ventures had offered more than 20 petajoules of domestic gas for sale, and there has been no spot LNG export from Gladstone in 2023.

The GLNG chief executive Stephen Harty commented taking all those factors in consideration, “it looks like any potential shortfall has already been fully mitigated.”

On April 1st the Federal Resources Minister is due to start deciding whether to curb LGN exports from Gladstone on a quarterly basis if required to avoid shortfalls in the domestic market.

The reform of the Australian Domestic Gas Security Mechanism (ADGSM) has Queensland LNG exporters and their customers in Asia concerned due to the volumes of gas that Asian nations rely on.

AEMO’s report again has called upon the Albanese government to match support, it has voiced for the role of gas through the energy transition with policy measures. Which would encourage investment in the development of gas resources.

Despite this, the cap implemented on wholesale gas prices and proposed ongoing regulation through “reasonable pricing” provisions on the east coast market has caused gas producers to put several investments in proposed projects on hold. The rules are to be included within the mandatory code of conduct which is expected to be released within the coming weeks.

Industry gas executives are currently arguing for some relaxation of the rules to allow new projects that are needed to meet demand to go ahead, and that barriers to new gas supply investment are removed on the east coast as more gas supply is needed over the coming years. Victoria and NSW state governments are also under pressure to relax restrictions on onshore gas development.

 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:

Energy users wait for lower price after intervention bill

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: