Gas markets capped after cold snap sparks price jump

The energy regulator has capped Sydney, Melbourne and Brisbane gas markets for the first time in a decade after the cold weather sent prices soaring.

Wholesale gas prices have soared 80 times normal levels following a cold snap and the collapse of Weston Energy last week. Picture: Bloomberg

A cap has been imposed on gas markets in Sydney, Melbourne and Brisbane after wholesale prices soared 80 times normal levels following a cold snap and the collapse of Weston Energy last week, with the surge described as “apocalyptic” by the Ai Group.

With a shadow gas price leaping to as much as $800 a gigajoule on Tuesday, the Australian Energy Market Operator was forced to intervene and set a $40 GJ price cap which is still more than four times average prices.

Experts say it marks the first time the price cap has been used in the last decade with the $800 price showing the level markets would have reached if the intervention had not taken place. Electricity prices have also soared with wholesale futures for the third quarter trading at all-time records.

The price pressures for electricity have forced a raft of smaller retailers to seek emergency measures with ReAmped Energy – which had 70,000 customers – the latest operator telling customers to find another provider.

“This is an incredibly volatile time for the energy market,” ReAmped Energy chief executive Luke Blincoe said.

“We know many Australian households are already facing cost of living pressures and we don’t want to contribute to this any more than needed, so we are in the unpleasant position of advising customers that they can get better prices with other providers, and they should seek them out as quickly as possible.”

“By leaving you are helping yourself, while helping to protect those who remain with us because we have no choice but to pass on the wholesale costs we’re facing.”

Several second-tier electricity retailers have set price increases exceeding 100 per cent with one Queensland operator telling customers to find an alternative supplier so they can dodge the unprecedented cost inflation.

High shadow prices have been caused by several factors including a cold snap hitting the east coast and the continued fallout from the demise of Weston, which saw over 1100 industrial sites on the hunt for emergency gas volumes from other suppliers.

“The high shadow prices are due to the extreme cold weather where Wednesday’s gas demand is forecast to be the highest in three years,” Josh Stabler, managing director with consultancy Energy Edge told The Australian.

Energy-exposed manufacturers have been warning they may be forced to close operations after being offered gas prices more than four times normal rates following the collapse of Weston with skyrocketing wholesale electricity and gas prices stoking fears of a cost crisis for the new Labor government.

The Ai Group, which represents Australian industry, said the price rise was staggering and said markets could remain elevated for years.

“The extraordinary price rises, including a 50-fold spike in wholesale gas prices in Victoria, have seen market price caps imposed in some of our largest local energy markets. The immediate pressures are from outages at old coal plants, consequent high gas demand for power, and the collapse of a mid-size gas retailer. But beyond these acute pressures lies the pull of international coal and gas prices, which are unprecedentedly high in the wake of the invasion of Ukraine,” Ai Group CEO Innes Willox said.

“With Europe announcing further steps today to wean itself from Russian energy, we can expect international factors to sustain high energy price pressures for years to come – especially in natural gas.”

While Melbourne’s market is under the cap due to high prices, both Sydney and Brisbane have been hit due to Weston’s customers entering a so-called retailer of last resort scheme.

The huge price jumps among the second-tier retailers will stoke broader concerns that smaller Australian electricity operators could follow the fate of UK retailers where nearly 30 energy companies have collapsed after failing to hedge against rising wholesale costs.

The Ai Group said a strategic response from both state governments and the Anthony Albanese-administration was needed to combat the price inflation.

“The new Albanese government has an unenviable but urgent task in responding to this crisis. It is not one they can or should take on alone. The States hold many relevant levers, as do the energy market authorities, energy suppliers and energy users. The first task for the Commonwealth is to bring us all together. Any strategy will need wide participation to work,” Mr Willox said.

With a jump in standing power prices announced, manufacturers are on edge after one of the nation’s biggest independent gas retailers folded which has triggered the owners of more than 1000 industrial sites to find emergency supplies.

Wholesale electricity prices at least doubled in most states in the first quarter of 2022 and quadrupled in Queensland amid high demand and fuel prices while the Ukraine conflict saw gas markets also hit a record, according to AER data released last Thursday.

Soaring prices have now landed the Albanese government with a fresh economic headache amid broader inflation, increasing interest rates and looming fears of a recession.

AGL Energy last week offered default spot prices of more than $44 a gigajoule for large customers, more than four times usual rates, after the collapse of retailer Weston Energy sparked a scramble for gas supplies.

LNG has shot to all-time highs this year while oil has surged more than 40 per cent this year and is now trading above $US120 a barrel – their highest level in two months – amid the prospect of a European ban on Russian oil imports.