Inflated east coast gas prices lifts Origin Energy
Gas prices on Australia’s east coast are expected to remain elevated this summer with an indicative LNG benchmark series showing the price for October at its highest level since January 2016, and nearly triple of just over two years ago.
Domestic tariffs for October soared to $13.21 a gigajoule, reflecting a 19 per cent jump on the prior month, according to the Australian Competition & Consumer Commission, which yesterday published its latest “netback” LNG series as an east coast benchmark for large industrial users. At those levels, prices have nearly trebled from a low of $4.59 a gigajoule in May 2016 with the series beginning at the start of that year.
The price for November given by the competition regulator was $12.50 a gigajoule with a slight dip to $11.87 in December expected before rising again in the final summer months to $12.90 and $12.83, respectively.
Users in the southeastern states could be paying up to four times historical prices of $3-$4 a gigajoule, although prices have retreated from a forecast given a month ago where tariffs were expected to top $15 a gigajoule this summer. The linkage between the east coast and international LNG prices took shape after Queensland’s three export projects started shipping local gas to customers in Asia over the past few years, which effectively tied the two markets.
The strength in both domestic gas and Asian LNG markets in the past few months was underlined yesterday by Origin Energy, which posted a 35 per cent increase in APLNG revenue to $640 million in the first quarter compared with the same period in the prior year.
“Australia Pacific LNG continues to produce at steady rates, allowing it to meet its LNG contract commitments and deliver large volumes of gas into the east-coast domestic market while higher realised prices delivered a strong uplift in revenue for the quarter,” Origin chief executive Frank Calabria said.
Higher seasonal demand in its energy markets operations included a 25 per cent lift in gas sales to business customers. The average domestic natural gas price on the coast rose $1 a gigajoule to $9.45 a gigajoule in the September quarter driven by Asian LNG pricing, according to Origin. The average spot electricity price was flat at $83.70 per megawatt hour in the three months to September 30.
Whether Origin’s electricity business would benefit from higher power future prices next year was uncertain given pressure from the federal government to pass on lower prices to consumers, Macquarie noted.
Futures prices, which indicate what traders and power companies are betting prices will average next year, show Victoria and South Australia are now expected to have average annual power prices near or above $100 a megawatt hour in 2019, equalling the Victorian record.
RBC said Origin faced a difficult market given political uncertainties, but expected it to outperform over the longer term.
Friday, November 02, 2018
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