Escalating energy prices continue making headlines, locally and globally. The recent Australian Energy Market Operator’s quarterly report shows that quarterly average prices have more than doubled from the previous highs of $130/MWh (Q1 2019) and more than tripled from the average costs of $85/MWh (Q2 2021). Meanwhile, Europe will head into winter with low gas reserves, with European Commission President Ursula von der Leyen warning of a possible partial or total cut-off of Russian gas.
The South Australian Business Chamber has been closely monitoring the situation. On 28 July, our Energy, Water and Sustainability Reference Group expressed concern that there are no short-term fixes to high energy costs and that prices are unlikely to come down in the next 12 months. One of our reference group members noted that export-facing businesses compete against Chinese counterparts, which receive subsidies from their government for energy costs. Another flagged that with gas prices moving from $11 to $36 – 60 per gigajoule, businesses must make difficult decisions daily about rescheduling production.
This is a global issue. The Economist recently stated that this year’s energy shock is the most serious since the Middle Eastern oil crises of 1973 and 1979. Russia’s invasion of Ukraine and subsequent decreased gas supplies to the European Union drove global demand and pushed market prices to unprecedented levels.
Supply and price issues are unlikely to improve in the next 12 months. South Australia’s strategy is to produce its own power through additional storage, batteries, renewables, and a new $593m hydrogen facility in Whyalla. This strategy will undoubtedly pay its dividends in the long-term through increasing capacity, driving down prices and ensuring that the State produces environmentally sustainable energy. Yet, businesses and consumers will keep seeing higher energy bills in the short term.
On the supply side, Australia is a significant gas producer, but it exports 85 per cent of its gas. The Australian Competition and Consumer Commission’s Gas Inquiry 2017 – 2025 Interim Report states that the outlook for 2023 is very concerning and predicts a 10 per cent shortfall. In this instance, the Minister for Resources could activate the Domestic Gas Security Mechanism to limit exports.
Australian Government Minister for Resources, Madeleine King MP, has already indicated her willingness to do so, and promised to take whatever steps are needed to avoid a repeat of the crisis we faced in early June. The Australian Government will need to play a careful balancing act, as activating the mechanism could also disrupt contracts, affecting Australia’s reputation as a reliable trading partner.
As we move towards a hot Australian summer and cold European winter, we prepare for both local and global supply shortages and increasing prices. The possibility of load-shedding may leave the Government with no other option but to activate the mechanism to ensure businesses keep their doors open.
