Australian energy market challenges to remain

High international energy commodity prices, issues in domestic coal power generation and a lull in renewable power could see increased gas and electricity prices across Australia’s east coast remaining elevated, according to Commonwealth Bank of Australia economists.

Spot prices for liquid natural gas (LNG) have surged as Europe looks to reduce its reliance on Russian gas, which could result in east coast Australia’s natural gas prices remaining structurally higher until at least the end of 2025.

Like gas prices, Australia’s east coast electricity prices have surged since April with seasonal and structural impacts all contributing to an administrative pricing cap being triggered.

In a report ‘Australia’s energy sector – The perfect storm’ CBA Mining and Energy Economist, Vivek Dhar, said consumers should look at opportunities to electrify their gas usage where possible:

“We’re seeing a confluence of factors impacting Australia’s energy prices. Consumers may need to adjust their activity in order to avoid peak prices in Australian winter and summer. While we can expect renewable energy to continue creating a greater impact on Australia’s energy grid, the lull from May to August will see fossil fuel power generation continue to play a significant role.

“Winter peaks in electricity prices will likely be exacerbated as coal power generation retires. Electricity prices should ease in spring as renewable power generation increases. While renewable power generation picks up in summer too, the risk of coal power outages in hot weather raises the risk of insufficient energy.

“Each season will continue to bring its own challenges yet the growth and advancement of renewable power generation, storage and transmission will continue to be the best opportunity to reduce prices over the medium term.”

The report predicts that petrol and diesel prices could remain elevated due to lower Russian refinery utilisation, limited spare global refining capacity and China’s restrictions on refined oil product exports.

“We can expect prices to fall later this year as global demand weakens however it is unlikely they’ll return to the same levels Australians have come to expect at the pump,” Mr Dhar said.

“The increasing popularity of electric vehicles will further help reduce Australia’s reliance on refined products, although supply chain delays will be a key challenge for rapid EV adoption in Australia.”

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