Albo was slow off the mark and buggered it up a few times but his government has averted a catastrophic 2023 energy crisis that was going to drive gas and power bills up by 120% (at today’s coal and gas prices) and add 7% to the CPI.
This would have also driven the cash rate to 7% and delivered a nation-destroying transfer of income and wealth from every household and business east of WA to a war-profiteering, foreign-owned, China-beholden, energy cartel.
So, Albo did what had to be done and capped the local gas price at $12Gj, and the coal price at $125 per tonne. How has this fared so far?
Very well. Local prices of gas and coal have both cratered beneath the caps and this has pushed electricity prices off a cliff. National Electricity Market (NEM) tariffs have crashed back to the historic average of $50MW/h:
If there is a problem it is that the coal price cap is too high. Coal-dependent states still have much higher average prices than renewable/gas states, averaging $78MW/h versus $45MW/h since the coal cap. Albo should consider cutting the coal cap lower:
NSW has already passed on most of this price shock to end-users. QLD has not, owing to state subsidies, but they will probably be maintained. SA, VIC, and TAS now have no shock to deliver.
Futures prices for electricity are also much rosier, averaging about $90MW/h:
Some of the premia is owing to 2023 coal plant closures such as Liddell. Futures should come down further yet.
International fuel prices are falling sharply too, and there is hope that it will continue. LNG has crashed. Why coal is at $400 is beyond me:
Europe’s gas inventories are bulging thanks to policy and warm weather:
Fingers crossed, with more warm weather, gas and coal will keep correcting, bringing political relief to local price caps. Oil should also drop through the year as the global recession takes hold, pressuring gas and coal even more.
Why it took so long for Albo to head off this existential shock is now a matter for historians. He acted just in time and now holds the whip hand over the cartel.
Aussie inflation is done. If it has any sense left, the RBA is also done hiking as the huge fixed rate reset smashes into the economy and job losses begin.
