- Volumes The surprising feature of the recent volume action is the softness in Queensland, down 4 per cent for the week and 8 per cent on the month compared to the previous corresponding period (PCP). It’s true that the weather is cooler than last year. Other potential explanations include reduced activity following floods, and perhaps some cut back at the Gladstone Aluminium smelter. Every other state saw a volume increase in the week. We suspect that is weather impact, cooler weather increasing heating demand. For the CYTD Nemwide volumes are flat on PCP.
- Future prices: Flat, and it’s now evident that price rises have basically slowed right down in the past month, pretty much as expected. Fig. 9 shows the lack of recent movement in the NSW quarterly contracts. Perhaps it’s time now to note that the slope of the futures curve is down. In the industry jargon the curve is in “backwardation”. It’s been that way all along, even when futures prices were rising. The message here is that current prices are above the long-term price expectation, even though all expectations are higher now than they were a year ago.
- Spot electricity prices: These remained over $100/MWh for the most part, despite the soft volumes. The gas price drives the marginal electricity price in Victoria, South Australia and Queensland and gas prices are higher than they were a year ago.
- REC: Unchanged.
- Gas prices: Gas prices were steady, essentially unchanged on last week, and higher than last year.
- Utility share prices: Share price action was relatively muted this week. The federal government’s announcement of changes to gas export licenses in the end seems to have not much impact on price. However we think it won’t assist the case to build LNG import/regasification facilities.
In Queensland, the state government has approved a pipeline from Townsville to Gladstone that, if built by Arrow Energy (Shell), would open up more Bowen Basin CSG fields. Still there is some uncertainty about the economics of those potential fields.
Another 150MW of utility-scale solar PV was confirmed in Queensland, bringing the state’s total to 950MW and the NEM-wide total to 1.8GW. It also sees increasing investment by APA, a large company with a low cost of capital, in renewable generation. As APA gets more comfortable with PV and wind we think they have capacity to make much larger investments. APA is a company that needs to be investing $1 bn or more to impact its share price.
- Orocobre (ORE) and Origin Energy (ORG) both released March quarterly reports. Of the two, ORE contained the most relative positive news with lithium production costs kept constant, despite lower volumes and management sounding upbeat on the prospects for future production once the Argentinian ponds are “rebalanced”. We’d caution that ORE is a speculative stock, not a place to put the rent money.
Origin’s quarterly wasn’t that inspiring. Of interest is that its price received for domestic gas – that is, gas sold into the domestic market – was $5.62/Gj compared to $5.67 for the March quarter in 2016. ORG contributed $50 million net cash to APLNG in the quarter, so it’s not just taxpayers that are missing out on the LNG “bonanza.”
David Leitch is a regular contributor to Renew Economy. He is principal at ITK, specialising in analysis of electricity, gas and decarbonisation drawn from 33 years experience in stockbroking research & analysis for UBS, JPMorgan and predecessor firms.