Manufacturing threat as gas prices spike
“We are paying over one day what we would normally pay over four days for purchasing gas. And we cannot call on customers and say that the gas price has increased four times can we please put prices up by 30%? It doesn’t work like that.”
“We don’t want to consider [closing plants] but if it continues, we will be left with no alternatives because how will we keep paying these gas invoices? Who is going to fund these invoices?”
The surge in prices have most impact on those industrial gas buyers who purchase gas directly from the spot market and so are not paying contract prices through an energy retailer.
But they will also flow through to contract prices if they are sustained.
Gas buyers are partly blaming Queensland’s LNG exporters for the higher east coast domestic prices as they seek to capture more of the super-high overseas prices for gas.
So-called “netback” prices for LNG exported from Queensland, which signal the equivalent domestic price that exporters are receiving, are at $38.09/GJ for this month, according to the national competition watchdog.
That is similar to spot prices in Victoria on Tuesday of $38.42/GJ, and higher than those in Sydney, Adelaide and Brisbane of between about $26/GJ and $36/GJ.
“Everything is on hold but in the meantime Rome is burning,”
— Garbis Simonian, Weston Energy
But analysis by consultancy EnergyQuest said the rise in domestic prices does not appear to be due to any increase in LNG export volumes. The firm linked the rise in gas prices more to greater call on gas for power generation due to the coal power outages.
“Overall, domestic gas prices have been on an upward trend for months due to high international prices and any disruption to domestic production, such as electricity generation outages, pushes domestic prices even higher,” EnergyQuest said.
But Garbis Simonian, managing director of NSW gas wholesaler Weston Energy, also questioned whether all the coal power outages were genuine, and whether some units were being kept offline to force up the wholesale power prices and therefore the gas price.
About 6000 megawatts or about 30 per cent of the National Electricity Market’s coal power generation capacity is offline, exacerbated by faults and maintenance required at aging infrastructure, further driving up wholesale electricity prices on the east coast.
“There is too much coal-fired capacity being turned off,” Mr Simonian said, calling for inquiries to be made into the outages, and urging government to take action on energy transition reforms proposed by the Energy Security Board last year.
“Everything is on hold but in the meantime Rome is burning,” he said.
“Everyone uses electricity and gas, We want something done about this, otherwise it will be catastrophic.”
Mr Jhunjhunwala also urged both federal and state governments to act, and said the Australian Domestic Gas Security Mechanism, the federal government’s gas export control mechanism to ensure adequate domestic supplies should be triggered.
“It seems that some of the coal-fired generators are reducing their capacity to drive up the prices of electricity, and that in turn is affecting the price of gas because it creates an artificial shortage because there’s not enough coal-fired power available,” he said.
“Obviously if there was not as much export of natural gas as there is today, then we would not have this problem because there would be more gas available at lower prices.
He said that after Causmag was last badly hurt by spiking spot prices, in the winter of 2021, it had made inquiries with a broker about securing contract supplies but all the offers received were at prices of more than $10/GJ.
“That’s still very high or us,” he said, noting that the problem has been ongoing for years, under successive federal and state governments.
“What we have found is that there has been a lack of action at both the state government level and the federal government level under both parties,” he said.
“You can’t just blame the Coalition or you can’t just blame Labor: both sides of the political spectrum has failed in their duties to provide natural gas at an affordable price to a certain company.”