Why gas prices jumped to record levels, and 3,200MW of coal went offline

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Regulator report highlights monopolistic gas industry behaviour SA trying to fight. And where did 3,200MW of coal capacity go?

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The attacks on South Australia’s energy policy continue apace – across mainstream media – and continue to ignore the contribution of record high gas prices and supply constraints to the spike in electricity prices in the last few weeks.

The latest weekly review published by the Australian Energy Regulator on the gas market provides some more insight into what has been happening, explaining the reasons for the sudden surge in the gas price, and noting that during the high priced electricity price events, a huge amount of “base load” coal fired capacity has been sidelined and unavailable.

As the South Australia government has made clear, and as the AER has repeatedly underlined, the principal causes of the high electricity prices over the last few weeks has been record high gas prices and supply constraints on the main link to Victoria.

South Australia has had coal-free generation in the past, without these spikes, because at the time the cost of gas was low. It has had big price spikes in the past too, before wind and solar came along, because the cost of gas at the time was high. Gas has always been the swing factor in setting the final price.

gas prices to July 2

According to the AER, one of the principal reasons that gas prices shot higher was that most major coal plants – and one big gas plant – had units unavailable in the first week of July.

Here’s the list from the AER: Stanwell 2 (off since 25 June), Torrens Island B3 (since 29 June), Liddell 2 (since 30 June), Yallourn 4 (since 1 July), Eraring 3 (since 3 July), Gladstone 3 (since 4 July), Loy Yang A1 & A2 (since 6 July – due to coal issues), Hazelwood (units 1 & 2 since 1 July and unit 5 since 5 July).

That’s a total of around 3,200MW of coal fired capacity not available, plus the gas outage.

As the AER noted, that wasn’t the only problem. Gas demand surged to $36.65/gigajoule in Victoria, mostly due to heating needs, and was also high in Sydney, where the price reached a record $28/gigajoule. Records were set in Adelaide too. Gas supply was also tight because so much was needed for the export market, and because of supply constraints in Queensland.

And, on top of that, gas customers were being hit by transportation “penalty charges” related to higher than normal pipeline use.

That’s the sort of monopolistic pricing behaviour that the South Australian government is trying to force out. Building more wind and solar farms, and providing more interconnectors, will go a long way to solving that, as will the change in market rules that the generators are fighting so hard to stop.

As SA energy minister has highlighted, gas prices have also been impacted by problems with the gas network, and the danger that supplies on both its pipelines could be interrupted.

The AER report confirms that – the quantity of supply to Adelaide on the SEAGas pipeline decreased markedly, highlight the huge demand in Victoria, where prices surged to $36.65/GJ – 10 times the normal price of a year or so ago.

On top of this, the SEAGas pipeline also had technical issues, due to a “Miakite compressor valve fault (upstream of Port Campbell in Victoria),” the AER  noted.

Poor old Adelaide: “In Adelaide prices increased across the week despite there being no substantial increase in demand,” the AER noted, and what increase that occurred was due to increase in demand by the power generators. Its gas price hit a record $24/GJ on the Saturday, largely due to issues elsewhere in the gas network.

 Electricity prices in South Australia – and elsewhere – were also impacted because there was little wind generation and the supply through the interconnector was also constrained due to delayed upgrades, the AER noted. But too many in the media are making too much of the wind supply.
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11 Comments
  1. Chris Fraser 3 years ago

    From time to time most States have shown progressive policy, but SA has been pretty consistent over a decade. SA should go for for 100% renewable by 2025 and use gas generators to service eastern States’ needs. Then we can see the difference in wholesale energy costs in the various States. Might even shut down Murdoch …

  2. Malcolm M 3 years ago

    Do you have an evidence link between the 3,200MW of coal capacity off-lined and an unexpected increase in gas consumption for electricity production ?

    • Giles 3 years ago

      To the AER report which is already linked in the story.

  3. Ren Stimpy 3 years ago

    Seems that if “The Australian” really is the voice of the people it should do a thorough investigation into why the price of gas is suddenly so high.

  4. Malcolm M 3 years ago

    Perhaps with this experience, the gas exporters would contract LNG exports for say a 90% capacity factor during winter, so they can sell gas into the south during cold periods when prices in the south are better than for exported LNG.

    The unplanned outages of coal generators could be a sign of things to come, as much of the equipment is now close to or beyond its design life. The Northern power station in SA was very unreliable several years ago, until Alinta did a major refurbishment. However, it still couldn’t make money despite SA having the highest electricity prices in any of the NEM markets. The owners of other coal-fired power stations would likewise be doing similar calculations about the returns from refurbishment vs quick patches to get the stations going again. Banks are unlikely to look favourably on loans for refurbishment given the risks involved, so it would be with internal capital. So I expect quick patches and unreliability will be with us until the stations are progressively closed down.

  5. Mike Dill 3 years ago

    Bring on the wind, and solar. We will get those prices down. By the way, the prices now are lower than the peaks of the past decade, and will be lower in the future as more solar and wind are connected to the grid.

  6. Brunel 3 years ago

    Seems like my idea of an UHVDC line from WA to NSW is a good idea after all.

    If so much coal went offline, solar could have taken up the slack.

    And with the gas price hikes, maybe the plants should be able to run on kerosene as well as gas.

    • JeffJL 3 years ago

      Solar PV and thermal all the way across the Nullarbor Plain. No evening peak then in the Eastern States.

      Two of them, one further north than the other.

      Oh for some leadership and vision.

      • Brunel 3 years ago

        2 of what.

        • JeffJL 3 years ago

          UHVDC lines joining the NEM to the SWICS in WA.

  7. DogzOwn 3 years ago

    Any chance off line status of Pelican Point has anything to do with being owned by Gdf-SUEZ(Engie)? As well as not buying gas at high price for PP, don’t they make mega bucks, at almost 100% margin, paying next to nothing royalty, on however much power over interconnector from Hazelwood?

    Tried to check max bid spot price into NEM USA, previous ceiling in CA of $350/MWh wholesale, never occurred, now deregulated because ceiling was said to encourage higher bids. Meanwhile our AEMO now allows up to lottery jackpot $13,800/MWh

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