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National Energy Markets update

Energy briefing update September 2022

Immediately following our last energy markets update, the energy crisis in Eastern Australia came to a head, with the electricity market operator taking unprecedented actions to ensure energy security. The situation has since eased, but energy prices remain far higher than what they were at the start of the year.

Electricity markets suspended

On 15 June, the Australian Energy Market Operator (AEMO) took the unprecedented step of suspending the normal market-based operation of the entire electricity system in the eastern states, and began directly controlling the actions of electricity generators. The word “unprecedented” is not used lightly: in the history of the National Electricity Market, this has never occurred before. AEMO’s broad rationale for taking this step was that it had become impossible to operate the market under normal conditions.

Why did this happen?

More specifically, AEMO said that “a confluence of high commodity prices, domestic market price caps, planned and unplanned outages of [large generators], low output from [small and renewable generators] and high winter demand conditions led to unprecedented challenges operating the National Electricity Market.

In other words, a cold snap at a time of low electricity generation supply, as well as high prices for fuel, made the supply-demand balance impossible to be managed normally. Adding to the situation, safeguards in the electricity market designed to prevent runaway prices were confounded by very high prices for coal and gas, meaning “normal” market conditions were impossible to achieve. The situation was ultimately resolved as generators were restored and the supply-demand situation eased.

With that said, a growing list of energy retailers are collapsing or being suspended from energy markets as continuing high prices add to their challenges in supplying customers facing extraordinary price pressures.

Electricity and gas prices ease, but still high

Electricity prices in eastern states have eased significantly since their highs in May-July, but average prices are still high, with most states showing an average around $150 per megawatt hour in August. Gas prices also remain high by historical standards – with spot prices between $10-20 per gigajoule being consistently observed – but have moderated significantly since governments intervened to cap gas prices at $40 per gigajoule in May.

Global commodity prices still high, but telling different stories

Energy commodities around the world have begun to follow different paths.

Thermal coal and liquefied natural gas - both commonly used for electricity generation – remain at extremely high levels. Newcastle coal continues to trade well about USD$400 per tonne, around triple or more its average for the decade preceding 2021.

Export-parity gas pricing is sitting at over AUD$50 per GJ in September. These high prices reflect the huge demand for gas in global markets as Europe continues to attempt to obtain energy from non-Russian sources ahead of the northern winter.

Global oil prices have lowered recently, with several key benchmarks now hovering just below USD$100 per barrel. As global supply improves, there is also speculation that worsening economic conditions could substantially reduce demand for oil, with a corresponding downward effect on oil prices. European demand for winter energy will impact the oil price to a much lesser degree, as oil plays a much smaller role in electricity generation and industrial processes than gas and coal.

While petrol prices in Australia have also declined, the temporary halving of excise duty on liquid fuels is due to expire on 29 September, which could see prices for petrol and diesel rise immediately by 25.3 cents per litre.


So what?

Energy prices have eased, but they’re still higher than they were at the beginning of the year.

That said, the principles of smart energy management are still the same: you can’t control energy prices, but you can control your energy bill by reducing your energy demand.


What now?

A proactive approach to energy strategy and management will ensure your business successfully navigates an increasingly dynamic energy landscape. Given this, what you do next is critical. We suggest:

Businesses in the farms, manufacturing and office sectors can further leverage sector spotlights that consider the sector-specific issues and guide businesses on their energy management journey.
 

Click here to return to the seventh edition of the energy briefing update.

 

About Navigating a dynamic energy landscape

There is an enormous amount of information on energy in the public domain, yet it can be hard for business leaders to extract what matters for their businesses.

Navigating a dynamic energy landscape: a briefing for Australian businesses is an executive-level briefing designed to cut through the noise and help businesses confidently navigate Australia’s dynamic energy landscape.

The sector spotlights and other resources that accompany the briefing exist to support this aim.

This initiative is delivered by the Energy Efficiency Council with the support of industry and government.