I have two websites I have been watching for the past couple of years that track which fuels are being used for electricity production, and I have noticed since the Liddell coal plant began its shutdown a month or so ago the use of gas has stepped up quite a bit.
Do you think that this plant closure is causing the the higher usage/prices?
Short answer is the whole energy industry has seen an extended period of underinvestment and that's global not simply local.
In more detail what's basically happened, in sequence is:
International LNG price soared. Note this happened prior to the Russia - Ukraine war and comes down to insufficient supply globally although obviously the war's adding to it.
That opened up a large discrepancy between Australian domestic market gas prices and the export value of LNG, thus leading to the Qld LNG plants running flat out and buying gas on the market in order to run LNG production at maximum. For reference, the ACCC's latest estimate of the value of exported gas is $38.09 per GJ whereas at the start of this calendar year, domestic market prices were circa $10. So a huge incentive to export even if that requires buying gas on the Australian spot market in order to do so.
International thermal coal price soared and is presently at about $19 per GJ equivalent. That's the price for exportable black coal, noting that some Australian power stations are heavily exposed to that, since they're using coal that's physically able to be loaded onto a ship as an alternative market, whilst are either using off-spec low grade coal of no real value or they have a "captive" supplier - there's no rail line that would enable export from the mine. It varies but for those that are exposed, well even if they've got a pile of coal sitting there they'll value that based on replacement cost in terms of operating decisions.
Coal at $19 per GJ whereas until recently Australian domestic market gas was cheaper. That has driven a partial switch from coal to gas for power generation, noting the complexity that doing so often involves a different company doing it (since not all owners of coal-fired generation also own gas-fired generation and vice versa).
Meanwhile we have declining gas production capacity, that is maximum flow rate in layman's terms, in both Victoria and SA.
Meanwhile the diesel price has shot up due to international factors. Not of immediate direct relevance to the Australian domestic situation but it does raise the maximum that someone would pay for gas. That is, if you've got the option to switch the plant to burn diesel well then the diesel price going up raises the price point at which that switching makes sense, thus raising the price you'd be willing to pay for gas.
All of that basically created a situation just waiting for something to set it off. Just needed physical consumption of gas in the Australian domestic market + maximum exports to exceed available supply and all of a sudden price would be sharply increased.
That trigger, of course, is simply the weather. Victoria has a large population in Australian terms and the majority of buildings, both residential and commercial, are heated with gas. Once the weather cooled, up went the price on the spot market.
From a financial perspective it all comes back to the overall tightness of supply for all forms of energy.
If coal wasn't so scarce and crazily priced then there'd be more enthusiasm to burn it. It certainly can't replace all gas use but a bit more could be used yes.
If oil and thus diesel wasn't so expensive then to some extent that could be used as a substitute by industry and power generation.
If LNG wasn't so expensive on international markets then there wouldn't be the incentive to run exports flat out.
But when they're all in short supply globally, when they're all expensive, well it's a bit of a tail chasing game really.
Same's underway in the US now too. Latest gas price there is $7.98 whereas same time last year it was just under $3. Noting different units of measurement and different currency, that $7.98 is equivalent to $10.65 per GJ in AUD. So gas in the US is still cheap but the same basic pattern is unfolding, the cheapness of US gas relative to coal is prompting an aggressive switch to gas for power generation, industry etc and the cheapness of US gas relative to international is prompting export facilities to run flat out. Same basic pattern there.
As for Liddell, well it has contributed in a minor way, closure of a quarter of the plant has lowered the maximum ability to use coal, but really it's only one of the many factors and not the major one. It's not zero but it's not the main cause.
I've intentionally avoided any mention of politics and have stuck to economics but what I will note there is that energy has been an extremely contentious subject in Australian politics for more than a decade now and I suspect this price shock will change that debate to some extent. There's quite a few in very high places who seemingly weren't expecting this....