SYDNEY, June 2 (Xinhua) — As pressure on Australia’s energy market from all sides has seen unfathomable spikes in energy and liquified natural gas (LNG) prices, authorities and retailers have been emptying out their toolbox to find a fix.
According to a note provided to Xinhua on Thursday by Australia’s national energy regulator, the Australian Energy Market Operator (AEMO), the spike has triggered an emergency in the Australian state of Victoria.
“AEMO issued a Threat to System Security market notice for June 1, 2022 at 11:13 a.m. (AEST) in Victoria’s Declared Wholesale Gas Market (DWGM) as a result of insufficient gas supply to meet forecast demand,” said the note.
Ahead of the forecast, the regulator triggered the Gas Supply Guarantee mechanism for the first time since its implementation in 2017. The mechanism is designed to ensure energy producers are able to meet demand.
Despite this, Australia’s energy market remains tight. Wholesale natural gas spot prices spiked to a dizzying 800 Australian dollars (about 573 U.S. dollars) per gigajoule in Victoria, 50 times the market cap of 40 Australian dollars.
Calls have been made to Australia’s newly appointed Treasurer Jim Chalmers to force exporters to divert LNG to the domestic market, which he has not yet ruled out as a “last resort.”
“This situation is so serious for parts of our economy, so dire that we shouldn’t pretend that flicking one switch or another will fix things overnight,” said Chalmers in an interview with Australian national news outlet ABC Radio.
Professor Raymond Li, an expert in energy economics from the University of Canberra, told Xinhua on Thursday while diverting LNG exports seems like a simple fix, it would be time consuming and difficult for producers to break existing contracts with overseas buyers.
“It’s actually already profitable (for energy producers) to sell in the Australian wholesale market … if the domestic sellers could divert shipments back into the country, they would.”
He said the underlying problem lay in a sudden surge in demand due to a cold snap that has suddenly swept across Australia’s eastern states since last week.
“On the demand side, we really can’t touch it effectively, because it is cold, people have to turn on their heater, so they need to use their gas.”
Unable to deal with the price shocks, a number of Australian independent or smaller energy retailers, who often purchase LNG off the wholesale market, have urged customers to look for better prices.
ReAmped CEO Luke Blincoe told Xinhua on Thursday that without owning any generation assets it was extremely difficult to “help customers get through this unprecedented challenge.”
“The companies that generate electricity and retail it will be able to offer better prices because they are making a margin on the wholesale market, so it’s unfortunately back to the big three or four retailers that haven’t always served Australians particularly well,” said Blincoe.
John Quiggin, professor in Economics at the University of Queensland, told Xinhua on Thursday that the crunch had been in the cards for several months. It is mainly about the increase in coal and gas prices following the Russia-Ukraine conflict, along with breakdowns in coal-fired power stations.
According to the AEMO, more than 30 percent of the coal power capacity in the National Electricity Market was estimated to be offline last month, which has furthered the strain on gas supply.
Quiggin said that beyond the short term, the key to a more resilient energy market lay in Australia’s transition to renewable energy sources.
“Most people are affected more by electricity (supply), and there’s really not much we can do about that other than hurry up the transition (to renewable energies).”
Li added that energy storage solutions would be just as important due to the fact that main renewable energies sources, like solar and wind, were “non-dispatchable” forms of electricity.
“I think that if we want to make renewables part of the solution to our energy portfolio, then we do not just need generation capacity, we also need storage capacity,” said Li. (1 U.S. dollar equals 1.39 Australian dollars)