Households are set for a shock as surging international prices for gas put upward pressure on costs for the fuel in Australia, according to one of the country’s biggest power providers.
Alinta chief executive Jeff Dimery said electricity prices would “inevitably” need to increase because of the increasing price of gas, which provides a significant amount of Australia’s power needs.
Mr Dimery said it was a similar story for bottled and reticulated gas used for heating, water systems and cooking in millions of homes up and down the east coast.
The comments come amid an energy crisis in the Northern Hemisphere, where soaring demand has collided with tight supplies to send gas and coal prices rocketing.
The volatility has led to desperate buyers in north Asian countries such as Japan and China paying up to $US150 million ($204 million) for single cargoes of liquefied natural gas — more than double the previous record.
Mr Dimery, whose company supplies energy to more than one million customers across the country, said Australia was not immune from movements in global energy markets and higher prices would eventually flow through to local users.
Shock will ‘not be a one off’
He said Alinta had already been affected by rising gas prices in recent years and “we’re expecting that to continue”.
“I don’t believe for a moment that this will be a one-off,” Mr Dimery said.
“History will tend to repeat itself and from my perspective this is part of that bumpy ride to transition.”
According to the Australian Energy Market Operator, gas was used to provide almost 10 per cent of the eastern states’ power in the three months to June 30.
But Mr Dimery noted that gas would play a more important role as coal-fired power stations came offline and gas was required to “firm” the electricity system when the sun was not shining or the wind not blowing.
Despite this, he noted investment in new gas resources was drying up as investors shunned fossil fuels.
“As coal stations close, gas becomes more and more important as a firming source of fuel,” he said.
“Until we get a significant jump in technology capability and a reduction in technology cost — and I’m talking about battery here — then gas is going to continue to play a critical role in the electricity supply mix.”
Big users to be worst hit
Tony Wood, the energy and climate director at the Grattan Institute, said the volatility on global gas markets was “extraordinary” but he questioned the extent to which it would affect local consumers.
Mr Wood said that although gas was poised to play a critical role in balancing electricity supply and demand as more renewable sources came online, this was likely to be short-lived.
“Gas will look like the Judi Dench of the energy industry,” Mr Wood said in reference to the famous British actor.
“What I mean by that is that it will walk on stage for a very short period of time, will be very important when it does but it won’t be on stage for very long.”
Mr Wood said the group of users most exposed to a jump in gas prices were industrial customers such as fertiliser and explosives manufacturers and aluminium producers, which employed tens of thousands of workers.
“For a very small number of reasonably large companies in this country it is a big deal,” he said.
“If you believe what they say, it threatens their very existence if it goes on at high prices.
“For those big businesses that are very gas intensive and that employ very many people, it is a really big deal for them and their employees and their customers.”
Federal intervention flagged
Mr Dimery agreed some gas users would be more vulnerable to price rises than others, but he noted previous efforts by the federal government to keep the market in check.
The Alinta boss said the threat of the Commonwealth imposing a reservation policy — as applies in Western Australia — meant gas producers had an incentive to direct supplies to the domestic market.
He suggested that without the threat of government intervention, wholesale gas prices in Australia could be three to four times higher than their current rate.
“It’s government that is fulfilling an important role to act as a spring or insulate Australia from the full effects of global pricing for energy,” Mr Dimery said.
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“They’re doing that with threat of reservation policies and the like to dull that impact on the domestic economy.”