The Australian manufacturer, which represents major gas users including fertilizer giant Incitec Pivot and building materials supplier Brickworks, has also called on the federal government to call in the Australian Domestic Gas Security Mechanism (ADGSM), which will hold an amount of gas that must be sold locally.
“The escalating energy crisis on Australia’s east coast now requires an extraordinary and urgent response,” said Ben Eddy, chief manufacturing officer of Australia.
But the Australian Petroleum Production and Exploration Association, which represents gas producers, opposes the measures, noting that up to 90 per cent of the gas market is covered by long-term contracts. “The rest is covered by smaller, volatile spot price markets that have been about 70 percent lower for most of this year than those paid internationally,” she added.
In response to a question during a press conference about the possibility of recourse to ADGSM, Treasurer Jim Chalmers told reporters that he would not pre-empt discussions with other ministers.
The sharp rise in gas prices presents a serious challenge to our economy. It requires close monitoring by all of our regulators and appropriate consultation and cooperation on all of our options, and that is what we intend to engage in.”
Coal and gas prices in Australia have soared throughout the year due to the war in Ukraine, which has choked global supply, a series of outages at old Australian coal-fired power plants, and even floods that have interfered with mining operations at some of those plants relying on them.
Pressure on prices has mounted in recent days with a cold snap of heating demand rising on Australia’s east coast, and the Australian Energy Agency’s decision last week to increase the default maximum prices that energy retailers can charge their customers in response.
Compounding the problems, Origin Energy on Wednesday told investors it had struggled to get coal for its Eraring facility in NSW Hunter Valley, the nation’s largest power plant, and would have to secure more expensive supplies of fossil fuels.
Declining production from coal-fired power plants across the East Coast has increased demand for gas-fired electricity, helping to drive sharp increases in wholesale gas and electricity prices.
There’s not much the federal government can do in the near term to force prices lower, said Tony Wood, who heads the energy program at the Grattan Institute. In the longer term, the nation’s policy of bringing electricity back – a $20 billion program to build new transportation infrastructure to connect new renewable energy regions and better facilitate the flow of electricity – should bring more renewable energy supplies online and reduce price pressures. But he said the project could take years.
Wood added that even if the government chooses to isolate some of the gas from export, the measure may secure supplies without having a significant impact on prices.
A spokesperson for the Australian Energy Council, which represents power and generator retailers including AGL and Origin Energy, said the activation of the gas sequestration mechanism was unlikely to address the causes of current high gas prices, which are the result of a combination of both domestically. and international factors.
“Factory outages, as well as low seasonal levels of renewable energy, are contributing to the current tight energy situation, which will improve later in winter through spring,” the spokesperson said. “There is no easy solution.”
Tennant Reed, the lead national advisor at the Australian Industry Group, said a rise in household energy prices of at least eight to 15 per cent was already supported by the regulator’s hike in the default price last week. This price is likely to rise further in the coming months and years, he said.
Some small retailer customers who do not have their own access to power generation will have prices rise further, he said, noting that one company told customers that prices could double.
He said that in the current geopolitical climate and in the face of the global energy crisis, any steps by Australia to reduce energy exports would not be well received by export clients.
He said government policies to improve transportation to incorporate more renewables, as well as state government efforts to improve home efficiency and replace gas appliances with electric alternatives, such as induction cooking and heat pumps, were the right responses, but that it would take years to implement.
In the short term, he said, federal and state governments could consider supporting the families hardest hit by the crisis.
According to its preliminary estimates, if governments target the most vulnerable 10 percent of households and small businesses, such an effort would cost about $6 billion.
Woodside’s O’Neill said the volatile market was evidence that “our response to the climate crisis is… [could] It caused an energy crisis.”
“I’m afraid some of that could happen in Australia where the stabilization capacity has really shrunk, there isn’t as much static capacity as there was in the past,” she said. “So when coal-fired power stops working, it’s a huge draw on gas, and there isn’t enough gas to meet that demand.”
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