Manufacturers raise the alarm over gas price surge
Manufacturers are sounding the alarm as east coast gas prices surge to levels not seen since 2016, thanks to cold winter weather and gas having to be diverted to generate electricity after the breakdown of coal-fired generators.
The spike in domestic gas to as much as $10 a gigajoule above export prices has triggered renewed calls from industrial gas users for the federal government to step in and redirect exported gas from Queensland to force prices lower.
Energy Users Association of Australia chief executive Andrew Richards said there were growing fears the market was heading back to the worst days of the east coast gas crisis.
“We are seeing storm clouds on the horizon. Last time I checked JKM was trading at $18 a gigajoule,” he said, referring to the benchmark spot price for LNG in Asia, which is now almost $10 a gigajoule lower than the east coast domestic price.
“I would say these coming months represent a real test for the gas industry and we will know if [the producers] are fair dinkum about looking after their domestic customers.”
The winter cold snap in the south-eastern states has combined with the impact of generator outages in Queensland and Victoria to drive up wholesale gas prices in Sydney to about five times their average of earlier in the year.
The squeeze has left manufacturers complaining they are falling victim to the consequences of an uncontrolled rush towards renewable energy by state governments and a lack of federal planning on energy policy.
At $27.55 a gigajoule, Sydney prices for wholesale gas are only just shy of the record hit in June 2016, according to adviser Energy Edge. That price spike five years ago triggered a ramp-up in federal government efforts to rein in prices, with only limited success.
“The government’s got to do something; What’s happening now is industry is being sacrificed for the sake of propping up the electricity market and because of their lack of planning in electricity,” said Garbis Simonian, managing director of NSW manufacturer and gas wholesaler Weston Energy.
“Twenty-eight dollar gas is not OK. This is wreaking havoc with industry and jobs.”
A spokeswoman for federal Energy Minister Angus Taylor said the Morrison government would ensure gas prices remained competitive by unlocking supply, delivering an efficient pipeline and transportation market, and empowering gas customers.
We want to ensure that domestic prices, for both contracts and the spot market, remain internationally competitive to support our manufacturing sector, small businesses and households,” she said.
But Mr Richards pointed to a “perfect storm” brewing with colder winter temperatures and outages of coal-fired power stations, such as Callide C and Yallourn, pushing prices north.
The explosion and fire that hit the Callide coal power station in Queensland in May immediately drove up demand for gas for electricity generation in the state and cut gas available for southern markets.
The issue was compounded by the flooding that cut generation at the Yallourn generator in Victoria last month, and a partial outage at the Esso/BHP Longford gas plant has reduced gas supply.
“With the cold weather expected to last until the weekend and the Longford outage to continue to 14 July, there is limited short-term abatement,” said Energy Edge managing director Josh Stabler.
He said the critical Iona gas storage plant in south-west Victoria, which has been withdrawing gas at record rates to help compensate, is now rapidly falling towards its minimum level, adding to concerns.
At Callide, meanwhile, owner CS Energy said the Callide C3 unit was now not expected to come back online until July 15, and C4 – which suffered the explosion – will be out of action until June next year.
Mr Richards said the federal government needed to consider some kind of further intervention or its much-vaunted “gas-led recovery” could be at risk.
He said some of the association’s members even floated the idea of the federal government – which has already committed $600 million to build the Kurri Kurri gas power station in NSW – becoming a gas wholesaler.
“Some people are getting pretty desperate,” he said.
“The federal government’s gas-fired recovery really needs to kick in soon. People are already asking where Snowy Hydro is going to get the gas for Kurri Kurri.”
Mr Simonian blamed the crisis on a lack of contingency in the power system to cope with periods such as winter mornings and evenings when there is no contribution from solar power. Although surging electricity prices at those times mean gas power generators can afford the higher price of gas, manufacturers cannot, he said.
“The price is being paid by industry,” he said, estimating that almost one-third of industrial gas customers pay roughly the spot price for the fuel.
Mr Richards said that while most manufacturers attempted to hedge prices through longer-term contracts, the days of three or five-year contracts for gas were over.
“A long-term contract is two years now. A lot of people I know are on two-year deals and if it rolls into a period of $18 per gigajoule they could be at the mercy of that,” he said.