Key gas observations for the month ending 16 January 2019:
Generation from gas fired power stations declined in 2018 as generation from other sources pushed out the higher cost source of generation. In terms of revenue from gas power stations, the volume weighted achieved price in each of the regions over the last month (relative to the same period 12 months earlier) was higher. In this example we can see gas generators generating less but achieving higher prices. There are numerous variables at play which drive these outcomes and contribute to this change. However, it is potentially the beginning of gas playing a smaller part in overall generation (MWh) but still remaining critical (if not more critical) in meeting peak demand. As units are forced to retire due to low utilisation, the concern of declining competition within the gas generation market could cause a greater concentration of market power during peak periods. As a result, prices could push up.
Gas prices remain high in all of the STTM hubs and the VIC gas market. There is little sign of relief in prices in the near term. There may be some relief in the market for gas buyers who took out oil linked contracts, as the price of oil remains low. Oil linked contracts became increasingly popular in 2018 as buyers looked to take on this variable themselves.