Rising global prices of energy resources has caught many by surprise. In Australia, we enjoyed stable petrol prices at the bowser, gas prices, stable residential electricity prices with some opportunities for good deals, as innovative energy retailers entered the market.

In the wholesale electricity market, the penetration of PV solar power has driven day-time electricity prices to very low (at times negative) levels with economics of coal generators becoming unsustainable.

The current crisis clearly showed us we are still far from a greener and cleaner energy future.

Supply chain issues, coupled with the war in Ukraine, shocked the global trade of energy resources. As European customers scramble to diversify away their dependence on Russian coal, oil and gas, global prices for those resources grew rapidly.

Australia, as a free market economy with little trade barriers, is also exposed to those shocks.

First, we felt it at the petrol bowser. Now, it’s the turn for electricity prices to rise. This comes as no surprise as coal and gas represent 53 per cent and 18 per cent of Australian energy mix in 2021 (Australian Energy Statistics 2022).

Where from here?

With no end to the war in Ukraine in sight and a pick-up in economic activity in China, the high prices are here to stay in short to medium term.

The federal budget is still deep in the red, thus we can’t realistically expect expensive solutions similar to the cut in petrol excise we have had earlier this year.

The healthy profits gas exports are currently experiencing are likely to make Western Australia-style requirements to reserve a proportion of the gas for the domestic use a very realistic option in the short-term.

In the longer term, we should not be swayed from the road to renewables. This would not only help us to tackle climate change but make us more immune to this sort of external shocks.

We have huge amounts of coal seam gas which was allowed to be exported with none reserved for Australia which has ultimately led to a situation where Australians are paying for gas prices at global parity.

Global gas prices are hyper sensitive to external changes in supply like the Russia-Ukraine conflict. This together with a cold snap and significant unexpected electricity outages have combined into a perfect storm pushing many small innovative electricity retailers to the wall or even bankruptcy, increased the cost of generating electricity and resulted in stark rises in gas and energy prices.

This would all have been preventable if successive governments had paid proper attention to rigorous monitoring and regulation of all the key energy markets in Australia. This is a policy failure a long time in the making and it will be very hard to remedy it quickly.

The best immediate solution would be to pull the so-called ‘gas trigger’ to requisition supplies of gas intended for export. In addition, the government should also seriously consider a full gas reservation policy for the entire country, similar to the one in Western Australia and the United States.

The gas crisis on the east coast has been percolating over many years.  Since 2015, when the three large LNG producers commenced in Gladstone gas prices have tripled.  This is unsurprising given that 85% of this gas is exported overseas.  

The disruption to the international energy market caused by Russian sanctions have reduced the global supply of fossil fuels.  This means any available fossil fuel is fetching record prices on the international market and east coast consumers have to compete with this. 

The only legislative measure that exists to deal with this is the domestic gas pricing mechanism which has never been triggered and appears to be little more than a rhetorical flourish.  This is completely unsatisfactory. 

At the very least, the east coast gas market should be protected by a domestic gas reservation policy. Further, energy crisis responses must be reviewed as a matter of urgency given the strong public interest obligations underpinning the exploitation of public resources such as gas and coal. 

Rising energy use due to cold weather, combined with coal production outages, have exerted strong upward price pressure in Australia’s energy markets. Gas could normally fill in for coal, but it’s in short supply as much of it is contracted for export to Asia. Some of those countries also are experiencing shortages and elevated prices on account of supply disruptions from Russia – gas markets around the world are interconnected, so when supply declines in one region, prices tend to rise everywhere.

Short-term solutions are scarce. Despite the rapid growth of renewables, they are not ready today to capture the market share of gas and coal. However, there could be price relief ahead. As the weather improves in the eastern states and the northern hemisphere, and as the global economy continues to slow, gas consumption should decline.

On the supply side, new gas and LNG projects are expected from most of the important producing regions. And although Russian supply has slowed, it’s unlikely to decline in a significant way – Europe has no real substitute, while Russia depends on the export revenue. The combination of all those factors should help bring prices down later this year. A restriction on gas exports by Australia may raise prices internationally and have the undesired effect of also lifting prices domestically.

War in the Ukraine, recent flooding on the east coast impacting mining works and supply for power stations, seasonal low levels of renewable energy production and plant outages have all been contributing to the current energy supply challenge and sharp price rises in Australia.

While Australia is working towards a green energy future, it is very important to have a transition plan to ensure energy demands for households and businesses are met without interruption.

Energy security is key to national security, and strategies need to be put in place and necessary actions need to be taken to ensure reliable and affordable energy supply available to the community, particularly amid a cold snap.

One solution may be building more versatile large energy storage facilities allowing Australia to store more energy at the right time and season and use it at the time of high demand without impacting our international export commitments. For example, building versatile large LNG storage facilities can help to meet the current demand and may also be used in future for storage of other types of energy such as hydrogen or ammonia as a hydrogen carrier.

The construction of LNG plants can cost billions of dollars and there is a great demand to minimise the construction costs while ensuring safety and security. By optimising the design and minimising the construction cost of these mega projects, opportunities can be provided to build more of these large energy storage facilities, contributing to better global energy security and a growing economy.