Big gas users warned of soaring price
AGL has begun notifying its commercial and industrial users that gas prices will rise to $9 a gigajoule from 2016, up from $6 in 2014. For 2015, the price will be $7.63 a gigajoule. Also, the cost of supplying the gas will rise 20 per cent over the five years to 2017.
The surge in prices comes as the pressures on gas explorers in parts of eastern Australia is becoming more intense as coal seam gas explorers face rising community opposition and a tougher regulatory regime. Metgasco, which has been exploring in northern NSW, is to halt all work in the area.
AGL is a large gas supplier to the main eastern states, but its long-term supply contracts expire over the next few years, which is leaving it exposed to price rises being pushed by gasfield investors.
Surging energy prices was a key factor in CSR's decision this week to close one of its glass plants, at Ingleburn in Sydney, in favour of sourcing more product from imports and other domestic plants.
"We see significant price hikes for business contract gas rates over the next four years," the chairman of energy sector specialist Energy Action, Ron Watts, said.
"It's hard to imagine increases in supply affecting this trend within four years, even if there was a favourable CSG [coal seam gas] environment."
Garbis Simonian, of Weston Aluminium, a large industrial user, said the the AGL price rise was "ridiculous".
"We can't pass that cost on to our customers - we couldn't even pass on the carbon tax," he said. "We've had to wear that cost rise."
Like many large gas users, Mr Simonian is looking at a round of heavy capital spending to cut energy use by up to 40 per cent.
AGL has been developing its own gasfields at Gloucester, north of Newcastle, and at Camden, south of Sydney, but it has been forced to abandon some of these plans as a result of changes to government regulations, which has left it confronting a potential $250 million asset write-down.
Even so, analysts estimate large gas retailers that are producers, such as AGL and Origin, will benefit from the surge in prices, which they estimate to be worth more than $2 a share for each company.
Frequently Asked Questions about this Article…
The article says large energy users face gas price rises of about 50% over the next few years as Queensland export gas projects push up domestic prices.
AGL has notified commercial and industrial customers that gas prices will increase from $6 a gigajoule in 2014 to $7.63 a gigajoule in 2015, and to $9 a gigajoule in 2016. It also said the cost of supplying gas will rise around 20% over the five years to 2017.
The article links rising domestic gas prices to the impact of Queensland export gas projects, tighter conditions for gas explorers in parts of eastern Australia, increased community opposition to coal seam gas and tougher regulation, all of which are putting upward pressure on supply and prices.
Surging energy prices were a key factor in CSR's decision to close one glass plant at Ingleburn and source more product from imports or other plants. Weston Aluminium's representative called AGL's price rise 'ridiculous' and said the company cannot pass the extra cost on to customers, forcing them to absorb costs or invest in efficiency.
According to comments in the article, many large gas users, such as Weston Aluminium, are unable to pass the full cost increases onto customers and have previously had to absorb costs like the carbon tax. That constraint is prompting some businesses to invest in energy-efficiency measures instead.
The article reports that many large gas users are planning significant capital spending to cut energy use by up to about 40%, investing in efficiency and other measures to reduce their gas consumption and manage cost pressure.
The article notes that coal seam gas explorers are facing rising community opposition and tougher regulation in parts of eastern Australia. As an example, Metgasco has halted all work in northern NSW, illustrating how these pressures can slow exploration and constrain future supply.
Analysts quoted in the article estimate that large gas retailers that are also producers, such as AGL and Origin, will benefit from the surge in prices — analysts put the gain at more than $2 a share for each company — although individual companies like AGL also face risks such as expiring long-term supply contracts and potential asset write-downs from abandoned gasfield plans.
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