Australia’s Gas Market Implosion Furthers the Case for Hydrogen

By ,

In today’s Money Morning…profiteering and policy failure…the gas companies aren’t solely to blame…one last hurrah…and more…

It’s no secret that our gas industry is a shambles right now.

Last week’s collapse of Weston Energy was simply the straw that broke the camel’s back. We’ve now seen prices skyrocket across all three east coast states.

Victoria, the latest victim, was in store for a price spike of 50-times normal levels!

Thankfully, intervention from AEMO has ensured we won’t all be going bankrupt this winter. As the AFR reports:

AEMO has capped prices over the past few days in the Sydney and Brisbane markets. On Monday, it imposed a price limit in Victoria after spot prices were set to soar to $382 a gigajoule.

The shadow price for gas that would apply if the cap were not in place spiked again on Tuesday morning to an unheard-of $800 a gigajoule. Manufacturers typically pay less than $10/GJ if they are on contract rates.

So while we at least have some short-term reprieve, questions will still linger over the gas market as a whole. After all, you don’t get to this sort of price insanity without something questionable going on behind the scenes…

Profiteering and policy failure

To unpack all that is going on in the gas market right now, you need to consider the context.

The ongoing war in Ukraine, for instance, is still the big factor at play here. Until it comes to an end, there is no real way to know if Russian oil and gas will be welcomed back into markets.

For Australian gas exporters, this was a huge win.

Yet somehow, for our local consumption, it has turned into a huge pain.

Macrobusiness’ David Llewellyn-Smith clearly thinks this is the result of profiteering:

It is beyond obvious that Australia’s east coast gas markets are so acutely and chronically short of gas that the market has now completely failed.

This is war-profiteering by Australia’s east-coast gas cartel of Santos, Woodside, Origin, Exxon and Shell as the Ukraine conflict leaves the world scrambling for gas.

I can certainly see why he would take this view, and he is right to point out the cartel-like nature of these providers.

But the gas companies aren’t solely to blame. The bigger issue I see is the distinct difference between east and west. Because while NSW, Victoria, and Queensland are all grappling with this crisis, WA couldn’t have a care in the world about gas.

That’s because WA has in place a policy for a strict amount of gas reserves. 15% of all gas that is slated for export must remain in the state for local consumption. It’s a simple yet extremely effective policy.

As a result, gas prices in WA are estimated to hit just $5.55 per gigajoule this month. Well below the $40 cap set across all three states in the east.

Funnily enough, though, there is a potential solution available. The newly elected prime minister could, in fact, trigger the Australian Domestic Gas Security Mechanism (ADGSM). This legislation — which was written up in 2017 — would force east coast gas producers to start prioritising local consumers, whether that be via curbing exports or finding new supplies.

So the real question is, why hasn’t this tool already been used?

One last hurrah

Whether through indifference, ignorance, or sheer negligence, I don’t think either political party cares all that much about energy prices. They might say they do, but lip service is all that most politicians are good for.

No, I think the only solution to this gas problem is going to come from alternative energy innovations.

Hydrogen, for instance, has been a highly topical contender of late — a possible replacement for natural gas that has huge growth potential.

Granted, it isn’t something that we can turn to overnight.

We’re still likely a few years away from building the infrastructure needed for the widespread use of hydrogen power. Not to mention building projects to drum up enough supply, too.

But that change is coming…

In Japan, for example, Panasonic has recently transitioned its fuel-cell production facility to hydrogen power — putting the technology to the ultimate test by using it to power their own operations.

It’s one of a few prototype projects that are expected to come online soon.

For our own gas market and energy consumers, we can only hope this is a sign of things to come. Because in my view, this may be the exact reason why we’re seeing such high gas prices right now.

We can all see the change coming, so it’s only natural that gas producers are looking to profit from LNG while they still can. Hopefully, for the rest of us, it won’t take long before we start to see some genuine competition.

This is just something to consider for the many energy investors currently.


Ryan Clarkson-Ledward Signature

Ryan Clarkson-Ledward,
Editor, Money Morning

Ryan is also co-editor of Exponential Stock Investor, a stock tipping newsletter that hunts down promising small-cap stocks. For information on how to subscribe and see what Ryan’s telling subscribers right now, click here.

About Ryan Clarkson-Ledward

Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

Ryan is also the Editor…

Vulcan Energy Shares Surge on Stellantis Equity Stake

Lithium developer Vulcan Energy [ASX:VUL] rose as much as 30% on Friday after conglomerate automaker Stellantis made a $76 million equity investment in the stock.

Australia’s Energy Crisis Opportunity

Chris Bowen conducted an emergency meeting for ministers across Labor, the Liberals, and the Greens. The agenda was to hopefully settle their political differences and come to a rational energy solution

One of the Best Plays into the Energy Transition

While lithium has been getting all the press lately, remember we will still need plenty of other materials for the transition, such as nickel, graphite, and cobalt — to name a few.

Origin Energy [ASX:ORG] Shares Drop 15% After Scrapping Guidance

Origin Energy [ASX:ORG] shares plummeted on Wednesday after the energy company cut its FY22 guidance and withdrew altogether its FY23 profit guidance.

Investing alongside Australia’s Billionaires

In today’s Money Morning…Australian billionaires are pouring money into the green economy…it’s not just about being green…this is a megatrend that will play out for years…and more…

Don’t Get Bogged Down by the Current Panic

In today’s Money Morning…there’s a lot of disruption happening in this space…EVs could get a big boost from the war in Eastern Europe…it’s easy to get caught up in the current panic…and more…