One of the key objectives of the federal government’s proposal for a ‘gas-led recovery’ – besides building a 250MW gas-powered generator (GPG) – is reducing gas prices through increased supply to domestic consumers. The proposal highlights the need to invest in domestic gas exploration and transportation, as well as create an ‘Australian gas hub’ in Wallumbilla in a bid to increase liquidity in spot gas in the east coast.
In this week’s ‘Chart of the week’, we investigate how different gas demand segments in New South Wales (NSW) have been trending and provide commentary on the potential impact of future supply on prices. As shown in the Fig. 1, the start-up of Liquified Natural Gas (LNG) exports in 2015 resulted in bullish trends in domestic gas prices with annual average prices in NSW tripling between 2014 and 2018. Whilst most demand settles on pre-agreed contract prices, spot prices are usually a good indication of potential price movements during contract negotiations. According to an inquiry from the Australian Competition and Consumer Commission (ACCC), contract prices offered pre-2020 were in the $9–12/GJ range. It is left to be seen how much of the current price softness flows into the next round of negotiations.
