Australian gas prices have recently coupled with European spot. Will linkage persist post-2023?

Last year it was difficult to imagine that spot gas prices in Australia would hit unprecedented levels of more than $40-50/GJ, with AEMO capping the DWGM price at $40/GJ. By comparison, the DWGM only averaged $5.10/GJ last year. As was mentioned by Energy Market Intelligence Manager Mohsin Ali in the previous COTW issue #136, price spikes like this have occurred in the past, usually lasting a day or two before setting back to normal levels ($5-$12/GJ). Conversely, the current price spike has been sustained for weeks, which has never been seen before in the gas wholesale market. It seems that global gas prices, TTF (Europe) and JKM (Asia), currently play an important role in influencing gas prices in the east coast gas market for several reasons:

  • Gas supply issues, curtailed gas flows (by~40%) from Russia to the EU
  • EU storage restocking requirements ahead of winter 2023
  • Stronger than anticipated gas demand recovery in the post-Covid world
  • Limited LNG flexibility due to planned and unplanned outages globally

In this Chart of the week, we examine the fundamental drivers that have traditionally driven gas prices in Australia, whether new fundamentals have arisen, and what this could mean for energy markets in Australia going forward.

JKM prices (Asian LNG spot prices) have traditionally heavily influenced Australian gas spot prices. As seen in Figure 1, stronger JKM prices, which have been supported by European spot prices (a new driver of JKM prices), have pushed Australian LNG netback prices higher, subsequently pushing up DWGM gas prices.

European overview

European gas prices started to rise at the beginning of last year and hit all-time highs with an annual average of $22.5/GJ ($15.8/mmBtu). Strong demand recovery (up 5.5%) together with plummeting domestic production (down 10%), lower LNG inflows (down 4%) and reduced Russian pipeline deliveries to the European Union (down 3%) resulted in a tight gas market. As Europe is trying to diversify its gas supplies from Russia, and attract alternative supplies (e.g. LNG), we might see a fundamental shift whereby Europe’s role in the LNG market changes from being a global sink for LNG oversupply (seen in 2019-20) to a direct competitor with Asian gas markets, leading to a much closer correlation between the two markets in the medium term. Currently, LNG accounts only for ~19% of Europe’s total gas supply, with the US being the largest supplier in 2021.

Adding pressure to gas supplies was a fire on 8 June at Freeport LNG’s facility in Texas, which has reduced U.S. export capacity by one-sixth.

Most of Freeport’s exports were contracted by Japanese buyers, with the majority of volumes being redirected to Europe as TTF is at a premium to Asian markets. The missing volumes from Freeport LNG will increase Europe’s appetite for uncontracted spot cargoes, leading to increased competition for volumes with Asia and providing further pressure to gas prices in the short term. Currently, Freeport LNG is not expected to return to full plant operations until late 2022.

Forward outlook

European gas futures are currently trading at $45/GJ, suggesting that tight fundamentals (e.g. reduced LNG and gas imports from Russia) will persist into 2023. Spot outturn gas prices in Europe are likely to hover around that level in 2023 if Germany and other EU states do not manage to re-fill their gas storage ahead of the heating season (which starts in October). This would then subsequently create additional gas demand to satisfy increased storage injections next summer, likely keeping prices high. In addition to the European tight supply-demand balance projected for winter 2023, it will be interesting to see if China’s strong appetite for LNG will continue in 2023 or whether this may be satisfied through increased pipeline flow from Russia across the Power of Siberia pipeline. If winter in China sees extended periods of below-average temperatures, it is very likely that JKM prices will remain relatively strong, adding upward pressure to LNG netback and Australian domestic gas prices.

Extraordinary high gas and power prices have negatively affected domestic end-users, utilities and retailers who are now competing against other buyers desperate for more supply. Hence, the ‘opportunity cost’ for gas is extremely high, meaning whoever has a gas supply contract could make more money by re-selling it to someone else. We will be keeping a close eye on the outcomes over the short term, particularly watching how Russian gas flows into Europe will evolve during Q3-Q4 2022 and how quickly Germany and other EU states will be able to re-fill gas storage facilities ahead of new Gas Year starting on 1 October 2022.

If you are interested in understanding the impacts of these potential market dynamics on future price curves, please reach out to our team, who will be releasing our updated price curves (Benchmark Power Curve) in the next few weeks. For more information, please email

To keep reading, please log in to your account or sign up for free

Alternatively, please sign up to receive free market insight online and direct to your inbox

Related thinking

Commercial and market outlook

Casualties of the energy transition highway – market effects of Torrens Island B retirement

As part of Australia’s energy transition, investments are being made to ensure sufficient network capacity to host renewable energy generation, share them between regions, and maintain power system security and reliability. One of the interconnectors being built is Project EnergyConnect (PEC), which will provide 800 MW of transfer capacity between...

Power and gas networks

How much impact does the MSC have now?

As prices in the market remain volatile, a recent drop in the price of wholesale gas has caused the Market Stabilisation Charge (MSC) to be triggered. The MSC was introduced in April 2022 as a short-term intervention in an unstable market, designed to protect suppliers that have hedged in advance...

Low carbon generation

Lean, clean, electrolysing machines – how clean is Australia’s hydrogen future?

The Clean Energy Regulator is currently exploring how to define ‘low-emissions’ hydrogen production through a Guarantee of Origin (GO) scheme for Australia. Such a scheme could set a threshold level for carbon emissions from the production process in order to classify it as being ‘clean’, similar to schemes in operation...

Power and gas networks

Sharing is Caring: UK Gas and Power Exports Volumes Versus 2021

It is perhaps unsurprising to highlight that global energy markets have been exposed to significant volatility in recent years. Whether this be through the emergence of a global pandemic, dampening demand and drastically altering consumption behaviour thereafter, to the Russian invasion of Ukraine which resulted in significant changes to historic...

Energy storage and flexibility

Christmas comes early for South Australian battery owners

The choice of Chart of the week was an easy one following Saturday’s storms that ‘reined’ down on South Australia. The state became isolated from the rest of the National Electricity Market after one of ElectraNet’s pylons, supporting the interconnector between SA and Victoria, was knocked down[1].   The consequence...

Home supply and services

A bumpy ride: Why rising wholesale prices are impacting NTS charges

Due to the current energy crisis, consumer energy bills have been exposed to substantial increases over the past year. The recent rise in wholesale prices has had knock-on effects in many non-commodity costs within consumer bills, some of which will be baked into charges for several years to come In...

Energy storage and flexibility

State of Storage: Investigating battery profit for NEM states

It has been an interesting year for Australian energy markets, facing unprecedentedly high energy prices, coal outages, and market suspension. In today’s Chart of the week, we will investigate the impact a BESS would have made during FY 2022. Using Cornwall Insight Australia’s battery simulation model, we simulated a stand-alone...

Home supply and services

Market share shifts: Octopus Energy’s acquisition of Bulb accelerates growth

On Saturday 29 October BEIS confirmed it had approved the transfer of Bulb’s 1.5mn customers, as well as 650 employees, to Octopus Energy. In this week's 'Chart of the Week', we look back over time at the two suppliers and the growth Octopus Energy has seen through organic means and...