NSW gas prices set to rise as demand outstrips supply

Posted on 24 Feb 2015 by Tim Brown

Energy company AGL has issued a warning to NSW customers that gas prices in the state may increase as a result of demand continuing to run ahead of supply and regardless of the decline in world oil prices, which has had a knock on effect on gas prices.

The NSW government’s Independent Pricing and Regulatory Tribunal, has approved NSW gas prices rises of as much as 40% in NSW due in large part to the increase in the domestic gas price to global levels following the development of a series of gas export projects in Queensland, which are now being brought into production.

“The NSW gas price is being influenced by the LNG-oil price,” the utility’s outgoing chief executive Michael Fraser told analysts this morning. “But NSW could well have domestic prices sitting above the LNG price.”

Community opposition to coal seam gas exploration has prompted energy utilities to warn that a lack of available gas will push prices higher in NSW in the coming years. Companies such as AGL and Santos have been hampered from developing prospective reserves in the state’s north and north west.

“The largest volume of uncontracted gas sits with Esso-BHP in Bass Strait,” he said. “When you look at the Cooper Basin [in central Australia] there is virtually no uncommitted reserves.”

Mr Fraser was commenting against the backdrop of strong first half-earnings posted by AGL, despite weak demand for electricity following steep price rises along with the roll-out of solar panels in the household sector.

AGL’s December half net profit rose 18% to $308m with earnings a share rising a more modest 8% to 48.6c due in part to shares issued to part fund the $1.5bn purchase of Macquarie Generation from the NSW government last year.

And its profits per household have continued to rise, generating a profit of $95 on average during the half from each of its household customer through sales of electricity, even though the volume sold here fell 2.3%.

It was a similar story with gas, where the company’s profit per household rose to $109 from $104, thanks in part to higher volumes sold of 7.5 per cent due to cooler weather during July and August.

The outlook for the gas price “will depend on when new supply can come onto the market”, Mr Fraser said.

“We need to contract or more gas from Bass Strait. That will supply part of the amount. The other part will come from Gloucester. How high prices will go will depend on when Gloucester will come on.”

AGL is seeking to develop a coal-seam gas prospect near Gloucester, north of Newcastle, although work has been suspended following the discovery of traces of benzene, toluene and xylene (BTX chemicals) which are highly toxic. AGL has denied it has used these chemicals in its drilling and development work at the site.

Mr Fraser said it was unclear how long the development work at Gloucester would be delayed, with the Environmental Planning Agency conducting a review.

“BTX occurs naturally. It has been identified previously in background monitoring as being present in Gloucester,” he said.