Oil and Gas News

APPEA sets the record straight on spot price markets

appea spot price market

The Australian Petroleum Production & Exploration Association (APPEA) has stated that volatility in east coast spot price markets has subject to the energy system being placed under pressure and therefore 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.

Approximately 85 to 90 per cent of the gas market is secured by long-term contracts, known as gas supply agreements (GSAs). These contracts were offered for the 2022 period and locked in by customers at around $6 per gigajoule to $9 per gigajoule.

The remaining contracts is covered by smaller, volatile spot price markets. In 2022, these markets have been around 70 per cent lower than those paid internationally.

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

Gas is keeping the lights on through international shocks and higher coal prices. Subsequently, the rise in gas prices isn’t being driven by gas exports or shortfalls.

In fact, the Australian Competition and Consumer Commission recently found that there has been no shortfall in the east coast market and 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,” said Dwyer.

“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.”