Although Origin has benefited from soaring gas prices, they have not been enough to offset its electricity problems, although it has maintained a group-wide profit forecast for 2021-22 thanks to its Australia-Pacific LNG export business (APLNG).
Outages of many coal-fired power generators in the national power market have boosted gas demand, just as colder weather on the east coast has pushed demand to record highs in some areas.
Last month, more than 30% of coal-fired power generation capacity in the national power market was estimated to be offline.
The problems at Eraring come as several coal-fired power generators have been hit by outages due to issues including a power fault at AGL’s Loy Yang A plant in Victoria and flooding and a fire at the power station at Callide in Queensland, while maintenance work was underway at others during the normally moderate ‘shoulder’ season before the onset of winter demand.
The problem is the power
This sent wholesale gas prices skyrocketing and pushed Australia’s energy market operator intervene to cap prices in three states and keep prices from rising to the staggering $800 per gigajoule in Victoria.
But Mr Calabria said the gas problems were rooted in electricity and the increased demand for gas for power generation was due to coal outages, combined with soaring international prices.
“The reality is that a lot of people are pointing out that this is a gas issue, and we would currently see more of the root causes coming from the electricity sector, and the demand that is coming from the electricity sector which sends gas into that area and the combination of those international prices.
Woodside Energy CEO Meg O’Neill, whose company became a major player in the East Coast gas market on Wednesday when it completed its $63 billion merger with BHP, said the crisis in the gas was complicated by the shutdown of coal-fired power stations.
“This just highlights the vulnerability of the East Coast energy markets overall,” Ms O’Neill said. The Australian Financial Review.
She said earlier today: “We have seen a very volatile market on the east coast over the past few days. It’s triggered by a few things, [including] the link between gas and coal.
“We don’t want our response to the climate crisis to trigger an energy crisis, and I’m afraid part of that [is] takes place in Australia where the capacity hardening has really come down… and so when coal-fired power goes offline, that means a lot of gas consumption, and there just isn’t enough gas to meet to this request, unfortunately.
Shell Australia chairman Tony Nunan also linked coal blackouts to soaring gas prices and soaring wholesale electricity prices. “The signal from the market is that the domestic market needs more supply,” he said.
Origin slashed its 2021-22 forecast for its Energy Markets division by about 26% and withdrew its 2022-23 forecast after it was hit by coal supply issues at its massive Eraring generator. 2880 megawatts, the largest power plant in the country. Its shares fell as low as $5.64 before rising to $5.91 at the close.
Centennial Coal, the Thai Banpu miner that supplies Eraring from its Mandalong mine, has under-delivered contracts due to production problems, which have worsened significantly in recent weeks. This has forced Origin to buy much more expensive coal in a market where prices have hit record highs this year due to the Ukraine crisis.
The problems at Eraring come as several coal-fired power generators across the country have been hit by outages due to issues including a power outage at AGL’s Loy Yang A plant, flooding and a fire at Callide Power Station in Queensland, while maintenance work was underway. made to others during the normally moderate “shoulder” season before winter demand kicks in.
The disruption is expected to continue into the first half of fiscal 2023. Delays in material procurement are another challenge.
Macquarie positive
Macquarie Equities said the situation has left Origin to either acquire coal at over $150 per megawatt-hour or buy power at even higher prices, with significant uncertainty for 2022-23 as Origin has yet to finalized its cover.
But Macquarie remained positive on the stock, saying Origin would raise prices for commercial and industrial customers, as well as residential customers.
Mr. Calabria confirmed that for households, Origin would likely reduce the discount between its pricing and Default Market Offering (DMO), which means a bigger increase for customers.
“You now see a market where the wholesale price is orders of magnitude above what can be recovered through a DMO,” he told investors, confirming consumer fears that rising price is higher than the increase of up to 18% approved by the Australian energy regulator has been approved Last week.
Industrial power buyers are already being hit with higher bills, while some gas manufacturers are struggling with default prices of over $40 a gigajoule after being moved to a “retailer of last resort” due to of the failure last week of NSW retailer Weston Energywhich was caught in the price squeeze.
“We don’t get help”
Manufacturing Australia chief Ben Eade has called for the imposition of LNG export controls by triggering the Australian Domestic Gas Security Mechanism (ADGSM).
“The growing energy crisis on Australia’s east coast now demands an urgent and extraordinary response,” Mr Eade said.
Without an urgent short-term response, Australia risked derailing an orderly transition to net-zero emissions and losing the very capabilities it would need to support new low-emissions manufacturing, he said.
Causmag International MD Aditya Jhunjhunwala, a former Weston customer who is billed $44.60/GJ by AGL, said, “We are not getting help from anywhere, we are now on day nine of default supply from AGL and nothing happened.
“There is no reason to preserve Australia’s domestic gas safety mechanism as a centerpiece and not use it as one of many steps to address this issue – particularly when the Labor Party itself was calling for vehemently the same while in opposition – waiting for further measures to be urgently announced and implemented.
AGL said it was working with suppliers and customers to source gas “in markets under considerable pressure,” noting wholesale price caps in several states.
“AGL Energy is committed to working to meet the supply demands of Weston Energy’s gas customers, even in these tight market conditions,” a spokesperson said.
Origin highlighted “extreme volatility in commodity markets, driven by a combination of global energy supply and security issues, exacerbated by the impact of the Russian invasion of Ukraine, with unprecedented increases in international energy prices, including coal, gas and oil”.
“At the national level, coal power plant outages and high coal and gas prices have contributed to a sharp increase in wholesale electricity prices,” he added.
Underlying EBITDA from Origin’s Energy Markets business this fiscal year is now expected to fall between $310-460 million, down from the original estimate of $450-600 million. .
Origin had also provided guidance for a recovery in earnings from that business for 2022-23 but has now abandoned that, with Mr Calabria saying the range of results was simply too wide.
He had estimated that the underlying EBITDA of the energy markets would increase between 600 and 850 million dollars in 2022-2023.
Origin’s APLNG business benefited from the strength in gas prices, helping to offset the hit in markets and allowing the company to maintain its group-wide earnings guidance range, although Macquarie noted that the now estimated mid-range fell short of market expectations.
APLNG is now expected to bring in around $1.4 billion in cash from Origin this year, up from initial forecasts of at least $1.1 billion.
Meanwhile, Steve Gurney, general secretary of Delta Energy, which also gets coal from Banpu’s Mandalong mine, suggested the generator was managing to maintain supply.
“Delta has the advantage of owning Chain Valley Colliery and also has longstanding relationships and contracts with other suppliers,” Gurney said.
“Delta does not operate at full power at all times of the day, as we forecast generation from renewable energy and other market suppliers. However, our units are available at full load to meet peak period demands. »
With Elouise Fowler
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