Energy Action’s Market Update – In this edition we discuss:
• Electricity prices drop on possible Government intervention.
• Contract Gas prices haven’t fallen yet but the spot market signals lower prices are likely
• Energy contracting strategies – take advantage of recent price weakness, it may not last.
Understand the impacts of energy crisis on the Furniture and Furnishing Industry.
Energy Action’s Outlook :
- Electricity prices drop in response to ACCC’s report into gas supply and the possibility of further Government intervention in the electricity market.
- In July, the ACCC released an enquiry into the gas export market, raising questions around why Australia is paying offshore pricing for gas produced locally. The impact was that gas producers perceived that the Federal government might intervene to reserve gas for local use. This directly impacts the cost for electricity, which is generally set by gas-fired generators and has resulted in forward prices falling by 20-30% over the past week. Electricity retailers are saying these reduced prices will be passed on to customers who are looking to contract their forward electricity usage.
- Gas contract prices haven’t fallen yet with no immediate gas contract price reductions being seen after the release of the ACCC gas industry report. Gas supply remains tight with expected scheduled releases in September . The gas industry is more concentrated and with limited retail supply, the market price for contract gas remains high.
- Energy contracting strategies need to manage current uncertainty and historically high prices. Some businesses forced to re-contract their electricity or gas supply are looking at a 300 to 400 per cent price increase. Because over the longer-term prices are expected to fall (that’s what the ASX futures market is telling us) businesses have a few contracting strategies open to them. Blend-and-extend, take an existing contract and average its lower contracts with future higher prices. Or take a short term 12-month contract rather than the normal 24 or 36-month terms accepting exposure to current high pricing in the expectation that prices may fall in the future.
- Our view is to take advantage of current price weakness rather than expecting prices to fall further. We recommend a longer term agreement of up to 36 months and smoothing costs over a 36 month period to offset current high prices with lower pricing during 2024 and 2025
Check out this month’s full market wrap HERE
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