EnergyQuest has just released its December 2022 EnergyQuarterly report with comprehensive analysis and data for the September Quarter, 2022 together with many statistics for October and into November.
The federal government is poised to intervene in the east coast gas market. The report has a deep dive into the issues. Moves to cap gas prices would not only increase east coast gas demand and reduce supply, but would also amount to a whopping and inefficient fossil fuel subsidy of over $20/GJ. Only two weeks ago at COP 27, Australia, committed to “phase-out of inefficient fossil fuel subsidies”. Targeting temporary financial support for consumers who are most vulnerable to energy price shocks would be a far better solution than price caps. The Treasurer is getting over $50 billion of windfall gains to his budget through the increases in company tax and PRRT from the spike in fossil fuel prices. The states already have a mish-mash of energy grants for energy cost relief that could be much better targeted through the Commonwealth welfare payment system.
NEM electricity prices have fallen since the winter power crisis but spot gas prices are still relatively high. This does not appear to be explained by changes in fundamental demand or supply. It may be that government actions (ACCC netbacks and promises of government intervention) are at least partly responsible.
In the light of Friday’s decision on Santos’s Barossa project, we take a look at the future of Australian gas and coal generally. Gas exploration is in the doldrums and the reserves to production ratio is only 22 years. The expected life of operating coal mines is only 20 years. According to the IEA World Energy Outlook the world will still need Australian gas and coal in 2050 but unless there is more exploration and development there will not be any to be had. Without a return of exploration to the levels of 2000 to 2010, Australia’s gas industry is shrinking towards zero.
The third quarter was marked by announcements of the accelerated closure of 10,000 MW of coal-fired power capacity but with only 127 MW of new renewable capacity going online during the quarter. It is much easier to close things in Australia than to replace them. Investment in firm renewables needs to ramp up massively to avoid high future electricity prices and blackouts.
Other highlights include:
- While generally above US prices, east coast producer prices were significantly lower than European prices in Q3 and lower than LNG landed prices in North Asia.
- East coast spot gas prices averaged $25.97/GJ in Q3, up by 139.6% from an average $10.84/GJ in Q3 2021 but down 10.7% from the Q2 2022 average of $29.09/GJ.
- There is a big difference between volatile spot prices and prices realised by producers. Producer prices ranged between $6.40/GJ for Armour and $13.12/GJ for Santos (up 75.2% qoq).
- East coast gas supply (production plus NT imports) decreased by 16.0 PJ qoq from 512.7 PJ in Q3 2021 to 496.8 PJ in Q3 2022.
- Western Australia continued to stand out as having low domestic prices in Q3. Santos’ west coast price was $6.00/GJ in Q3, 6.6% lower qoq. WA prices continue to be the lowest prices on our map of international and Australia gas prices.
- Gas supply for West Australians continued to rise strongly thanks in large part to WA’s envied gas reservation policy. WA conventional domestic gas production increased by 14.2% in only three months, up from 94.4 PJ in Q2 2022 to 107.8 PJ in Q3 2022.
- NEM electricity spot prices averaged a Q3 record high of $216/MWh, $158/MWh (271%) higher than Q3 2021 but down $48/MWh from the highest recorded quarterly price of $264/MWh in Q2 2022.
- The east coast gas power generation (GPG) share rose to 6.5%, up from 5.9% in Q3 2021. The GPG share in NSW and Victoria was 3.0% and 5.0% respectively.
- National LNG production eased slightly in Q3 2022 and is unlikely to set a new record in 2022, but further growth in realised prices is sending export revenues to all-time highs. The average ABS export price almost doubled, up by 94.9%.
- The exceptional realised prices drove export revenue in Q3 2022 to a record level for the second successive quarter. EnergyQuest estimates export revenue was $25.4 billion in Q3 2022, up from $19.5 billion in Q2 2022 and almost twice the level of Q3 2021.
- National natural gas production in Q3 2022 was 4.6% lower qoq at 1,353.7 PJ, reflecting a significant decrease in LNG production compared to the record LNG shipments of Q3 2021.
The 153-page report also has 61 Tables and 67 charts, providing the latest numbers on Australian energy in 2022.
Further information, including the brochure with full table of contents, can be obtained by clicking here.