08 April, 2017
Courtesy of the Australian
East coast energy prices will continue to soar over the next three years as Queensland gas exports grow and more gas-fired power is needed to compensate for the closure of the Hazelwood power station in Victoria, according to UBS.
The “looming energy crunch” will bite households and businesses, but will be a good thing for AGL Energy, whose shares continue to power to new highs.
UBS analysts yesterday increased their forecasts for power and gas prices and put a buy rating on AGL, despite it already being the second-best performing top 50 stock this year with a 27 per cent gain.
“Energy prices, both electricity and gas, are highly likely to undergo sustained upward pressure across the eastern states over the next few years,” UBS said.
“Both the business and household sectors look set to endure significant increases in their energy costs.”
UBS said wholesale gas prices were expected to stay in the $8-$10 per gigajoule range for the foreseeable future, translating to a 60 per cent increase for industrial customers and a 21 per cent increase for retail shareholders.
Wholesale power prices are expected to rise at least 50 per cent from last year to $80 per megawatt hour, in line with rises in electricity futures.
“A confluence of factors are driving up wholesale electricity and gas prices, including the progressive closure of coal-fired base-load electricity generators, the surge in LNG output, restriction on the development of additional onshore gas supplies and ongoing energy policy uncertainty.”
During the week, The Australian reported that southeast gas customers were being charged $12-$15 a gigajoule for long-term contracts as the closure of Hazelwood, combined with Queensland LNG project gas demand, sparked fears of winter gas shortages.
It was also reported that Orica had to pay about $10 a gigajoule for gas it bought from Shell for its Yarwun plant at Gladstone.
These prices are up from traditional prices of $3-$4, after an $80 billion boomtime LNG investment spree in Queensland has rapidly tripled east coast gas demand but not developed enough coal-seam gas to feed the plants at Gladstone’s Curtis Island.
“We expect virtually all manufacturing and mining companies (with eastern state operations) will experience energy-related cost pressures over the next few years,” UBS said.
“Companies that could face significant energy cost pressures include Orora, Orica, Rio Tinto, South32, OZ Minerals and Newcrest.”
Despite the warnings, UBS only changed its price target for AGL, saying Origin Energy’s exposure was limited because it was short generation capacity and the extent of the pain for the other companies was unclear.
The bank raised its price forecast for AGL from $25 to $29, saying the market appeared to be factoring in power prices of $72 per MWh, compared to UBS’s $80-plus.
Yesterday, AGL shares rose 70c, or 2.6 per cent, to a record of $27.61.