Key Energy Review - December 2015


Welcome to our December newsletter. This newsletter looks at gas prices, electricity prices and the new pipeline linking the NT to the East Coast gas markets. It is probably also worth mentioning the high price paid for the 99-year lease of TransGrid. If this is a sign of things to come with the NSW privatisation, then it does not bode well for network cost reductions. We also take this opportunity to wish you all the best for the holiday season. As with previous years we have elected to make a donation to Berry Street rather than send out Christmas cards, so please consider this your personal greeting.

Talk of excessive retail gas prices have eased off and nobody is really expecting numbers like $12/GJ as rumoured last year. There are no longer fears of a medium term domestic gas shortage or of a huge rush to supply export markets at the expense of domestic markets.

Gas STTM ($/GJ)

STTM

The North East Gas Interconnector (NEGI) contract, to build a pipeline that will connect the NT's gas reserves to the East Coast market, has been awarded to Jemena. The pipeline will run from Tennant Creek in the NT to Mount Isa; a distance of about 660kM at an expected cost of $800M. Initial pipeline capacity will be 120 TJ/day. This will further reduce pressure on the East Coast domestic gas markets by increasing the supply of gas to the export markets.

Electricity Prices across Australia have moved up over the last few months and the period of low prices experienced earlier this year may be over, at least in the short term. This is due to a number of factors including increased demand for electricity in Queensland required to power the gas train, the expectation of a long hot Summer and low water storage in Tasmania.

South Australia has been hit particularly hard with most analysts of the belief that this is largely due to the high percentage of renewable generation in SA. While fuel costs for renewable generation can be considered to be zero, there is still a capital cost that needs to be recouped and the need to have sufficient conventional generation to meet demand when the sun is not shining or the wind is not blowing. The unpredictable nature of renewable generation makes it hard for cheap baseload coal generation to operate, therefore SA is left with the option of more expensive intermediate gas fired generation or importing from Victoria. This will only become worse when the Port Augusta Power Station is retired.

WEPIndex

The following graph of the Electricity Futures Index (EFI) shows a more worrying trend, with steep increases across the entire East Coast.

WEPIndex

If you would like any further information about energy prices or related issues, please contact us by email: info@thekeygroup.com.au or phone: (03) 9885 2633.

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