Gas price surge stokes winter concern in manufacturing sector

A surge in the price of gas will intensify concerns among Australia’s manufacturing companies, the country’s dominant domestic users.

Gas prices have hit a 10-month high as markets evaluate the threat of a winter power crunch.

A surge in the price of gas will intensify concern among Australia’s manufacturing sector – the country’s dominant domestic users – and leaves the country vulnerable to a repeat of the chaos seen last year when the energy market operator was forced to intervene to prevent blackouts.

Production issues at ExxonMobil’s Longford plants and capacity constraints on the Moomba to Sydney pipeline that curtailed supplies to Sydney saw gas prices in the country’s most populous city hit a high of $30/gigajoule late last week. Prices have edged down slightly, but remain close to the milestone. While the spike will only immediately affect those without contracted supply agreements, the more immediate threat is a repeat of the unprecedented upheaval in Australia’s energy market last year, triggered in large part by the fundamental change in how the country consumed gas.

Gas in Australia is typically used as a so-called peaker, with plants fired up when demand is strong in the evening and on cold mornings. But with a spate of coal power stations offline in 2022, gas plants were running around the clock.

Energy Edge managing director Josh Stabler said that Australia was susceptible to upheaval this winter.

“If we can keep gas in its lane, which is using gas for peak demand periods, then the market will have a better chance of riding out these issues. We don’t have any planned outages for coal generators over winter but we know that Callide C is offline and Liddell is gone so there is an elevated risk,” Mr Stabler said.

Any coal outages driving increased demand for gas will in turn increase prices, a hammer blow to heavy users and the federal government, which is under mounting pressure.

The federal Labor government last year introduced a cap on gas prices after a campaign by small businesses struggling with surging prices and claims by Australian manufacturers they could not survive without government intervention.

The intervention has been heavily criticised by developers, some of whom have delayed new projects, threatening to exacerbate a domestic shortage expected in 2025.

The partial return of the 466 megawatt C3 unit at the Callide coal-fired power station – which had been out of action since October last year – will now be delayed until September 30, and full operation will not begin until December 31.

AGL Energy in April shut its Liddell coal power station, which provided about 6 per cent of NSW’s energy needs when it was shuttered.

Wholesale electricity prices have risen in recent weeks, stoking further concern about growing pressures on households and businesses.

Increases to wholesale electricity generation, which is the cost of generating power, will be a major driver of price increases from July 1, 2024.

The Australian Energy Regulator last week approved increases of about 25 per cent from July 1 for much of the country, stoking concern about a cost of living crunch.

The wholesale price was the largest driver of the increases, the AER said.

Prime Minister Anthony Albanese has insisted his government did, however, limit further increases.

“We are doing our best to keep those costs down. That was acknowledged last week by the energy regulator. Our interventions have made a significant difference,” Mr Albanese said.