Australia’s major gass lobby says spot price markets and coal failures are behind recent pressure on power prices. 

The Australian Petroleum Production & Exploration Association (APPEA) says volatility in east coast spot price markets is subjecting the energy system to increased pressure, which therefore leaves it relying more on gas.

“This is particularly because of coal outages, relatively low levels of renewable power generation as a result of weather conditions and international market pressures arising from the Russian invasion of Ukraine,” said APPEA acting chief executive Damian Dwyer.

The APPEA says that close to 90 per cent of the gas market is secured by gas supply agreements (GSAs) - long-term contracts offered for the 2022 period and locked in at around $6 to $9 per gigajoule. 

The rest of Australia's gas needs are met by smaller, volatile spot price markets, where domestic gas prices tend to be lower than those paid internationally.

“Domestic supply is secure and at near record levels,” Mr Dwyer says. 

“While we understand that current spot prices are under pressure and we are working with all parties to resolve this issue, the vast majority of manufacturers are either long-term, lower price contracts or aren’t major users of gas and so not materially affected by gas prices.

“As identified by AEMO, coal prices have skyrocketed and there have been outages at a number of coal- fired power stations – increasing electricity prices and increasing demand for gas to fuel gas-fired power generators that were suddenly called into operation.”

In short, he claims that the rise in gas prices is not being driven by gas exports or shortfalls, but by the fact that gas is keeping the lights on as coal power fails.

Along these lines, the Australian Competition and Consumer Commission (ACCC) recently found no shortfall in the east coast market, and the authority even anticipates a surplus of 11 petajoules in 2022.

“There is enough gas for domestic customers and there are mechanisms to make sure there is gas for domestic customers and that the market is transparent,” Mr Dwyer said.

“What this situation highlights is the important role gas will play in the future cleaner energy mix, replacing coal as a cleaner fuel or as a stabiliser for intermittent renewables.”