Australia: Gas rises as generators run dry

The Australian: Gas prices in the eastern states are beginning to rise as water shortages restrict output from coal-fired power stations. Graeme Bethune of Energy Quest said yesterday that gas production in eastern Australia jumped 20.1 per cent in the March quarter compared with the same period last year.

This reflected growth in gas-fired electricity of 67 per cent at a time when generation from hydro fell by 18 per cent and the total coal-fired generation had been flat - constrained in Queensland and Victoria by water restrictions. Dr Bethune said strong demand for gas had pushed up wholesale gas prices, with average Victorian spot prices up 27 per cent to $3.38 a gigajoule on the 2006 March quarter.

Gas prices have also been on the move in Western Australia where gas is sold on long-term contracts. After years of hovering around $2.23 a GJ, recent sales have been as high as $5.50 a GJ. The rise spells good news for AGL and Origin which have long-term contracts at lower prices with the main gas producers but are able to sell to the generators at higher prices.

Dr Bethune said gas-fired power stations in South Australia, southern Queensland and Sydney and Melbourne were running flat out because of the problems affecting hydro systems in the southeast and cooling water for large, coal-fired operations particularly in Queensland.

In April, the Energy Users Association, which represents major industrial electricity consumers, warned of big increases in wholesale electricity prices.