First electricity, now we face big rise in gas prices

THE impact of the resources boom is soon to be felt by NSW households as surging gas prices from export projects in Queensland force up household gas bills.

By InvestSMART · 28 Nov 2012

By InvestSMART ·
28 Nov 2012

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THE impact of the resources boom is soon to be felt by NSW households as surging gas prices from export projects in Queensland force up household gas bills.

AGL has applied to the NSW government pricing regulator IPART, the Independent Pricing and Regulatory Tribunal, to raise gas prices by an estimated 10.4 per cent from mid-next year, with further steep, although unspecified, price rises expected over the following two years.

Rising gas exports from eastern Australia will push up domestic prices since international prices are more than twice as high.

The impact is compounded by the fact that AGL's long-term gas purchase contracts from producers are expiring over the next few years, leaving it fully exposed to an expected surge in gas prices.

As it has yet to finalise its new gas purchase contracts, AGL has not indicated the likely rise in gas prices that will occur in 2014-15 and 2015-16 in its application to the regulator.

The rises come in the wake of large rises in electricity prices, with increases of up to 20 per cent taking effect from July 1 just the latest.

"The last thing NSW families need is yet another skyrocketing bill from the O'Farrell Government, this time in the form of gas prices," the State Opposition energy spokesman, Ron Hoenig, said.

"Gas bills for AGL customers ... would rise by an extra $84 each year from July if the O'Farrell Government passes on this price hike.

"Barry O'Farrell has already passed on a whopping 38 per cent increase in household electricity bills and NSW families can't afford another hit to the weekly budget."

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Frequently Asked Questions about this Article…

Why are NSW gas prices expected to rise and what's driving the increase?

Rising gas exports from eastern Australia, especially projects in Queensland, are pushing up domestic gas prices because international gas sells for more than twice the domestic price. The article says this resources boom and higher export demand are the main drivers of expected household gas price increases in NSW.

What has AGL applied for with the NSW pricing regulator IPART?

AGL has applied to IPART to raise gas prices by an estimated 10.4% from mid‑next year, and it warned of further steep (but unspecified) increases expected over the following two years, according to the article.

How does AGL’s contract position affect future gas prices?

AGL’s long‑term gas purchase contracts from producers are expiring over the next few years, leaving the company more exposed to a surge in market gas prices. Because AGL has not yet finalised new purchase contracts it has not specified likely price rises for 2014‑15 and 2015‑16 in its regulator application.

How much could AGL customer gas bills increase if the price rise is passed on?

The article reports a State Opposition estimate that gas bills for AGL customers could rise by an extra $84 each year from July if the O’Farrell Government passes on the proposed price hike tied to AGL’s application.

How do the gas price rises relate to recent electricity price increases for NSW households?

The gas increases come after large electricity price rises: the article notes electricity price increases of up to 20% took effect from July 1, and quotes criticism that the government has already passed on a 38% rise in household electricity bills, adding more pressure to household budgets.

What role does IPART and the NSW government play in these gas price changes?

IPART (the Independent Pricing and Regulatory Tribunal) is the NSW pricing regulator that AGL has applied to for permission to raise gas prices. The article indicates the government’s decision to pass on such regulator-approved increases would determine whether households actually see the higher bills.

What should everyday investors watch for in relation to NSW gas prices and energy companies like AGL?

Investors should monitor AGL’s progress in renegotiating gas purchase contracts, the outcome of its IPART application, and trends in Queensland gas exports, since those items are highlighted in the article as key factors that could drive domestic gas prices and affect energy company margins.

When will the proposed gas price rise take effect and how long might increases continue?

According to the article, AGL’s estimated 10.4% gas price rise is proposed to take effect from mid‑next year, with further steep but unspecified price rises expected over the following two years; AGL has not detailed exact increases for 2014‑15 and 2015‑16 in its application.