Inflation

[Smurf1976]

Electricity costs will not rise significantly, there is new competition coming, wait and see. There could also be a drop in prices.

Average annual wholesale spot prices (calendar years):

Queensland:
2019 = $86.30
2020 = $52.65
2021 = $119.89

NSW:
2019 = $90.29
2020 = $74.30
2021 = $85.82

Victoria:
2019 = $129.38
2020 = $66.07
2021 = $59.84

Tasmania:
2019 = $111.37
2020 = $53.96
2021 = $49.96

SA:
2019 = $135.99
2020 = $53.98
2021 = $70.45

WA (South-West Interconnected System only):
2019 = $48.18
2020 = $50.95
2021 = $52.33

The big inflationary pressure in the industry at present is fuel costs. The present LNG netback price being $41.24 / GJ (ACCC data) and projected to remain over $30 through to the end of March 2030.

Putting that into perspective, $40 is simply "off the charts" sort of crazy, indeed the $20 reached briefly last year was off the charts at the time and seen as a crisis of sorts when it happened. Price in December 2019 was $6.53 and the low point was $2.29 in July 2020.

LNG netback prices don't directly flow through to the domestic market but they do influence it in the context of uncontracted gas. If someone can export something for $30 - $40 then it's a tough gig to persuade them to sell it for less - they'll only do that if demand stays down low enough that there's no physical means to export it due to capacity constraints which puts a volume cap on the quantity available at lower prices.

The thermal coal price presently in the high AUD $200's per tonne is likewise a very real cost pressure especially in Queensland and, when contracts expire or for above contract volumes, NSW. It's cheaper than gas at those prices,

There's some very real inflationary pressure there, presently being hidden by fixed price contracts and so on but it's there that's for sure and will flow through in due course if the underlying circumstances don't change since contracts don't run forever.

In due course fossil fuels will become mostly irrelevant to the input costs for electricity but we're a long way from that at present, in practice black coal and gas set the marginal price much of the time and right now they're getting expensive.

 

[Smurf1976]

Natural gas sales are ramping up, competition is increasing. Developed countries, including China, are moving to new forms of energy. How will this affect the pricing of natural gas?

Australian east coast LNG netback prices (Source = ACCC data):

November 2019 = $6.72
December 2019 = $6.53
January 2020 = $6.29
February 2020 = $5.86
March 2020 = $3.86
April 2020 = $3.73
May 2020 = $3.50
June 2020 = $2.44
July 2020 = $2.29
August 2020 = $2.36
September 2020 = $3.14
October 2020 = $4.71
November 2020 = $5.71
December 2020 = $7.61
January 2021 = $8.73
February 2021 = $19.62
March 2021 = $8.56
April 2021 = $6.44
May 2021 = $7.64
June 2021 = $9.69
July 2021 = $11.74
August 2021 = $14.38
September 2021 = $14.85
October 2021 = $22.18
November 2021 = $39.35
December 2021 = $35.53
January 2022 = $41.24

At the present price diesel or even jet fuel are cheaper to burn than gas is and there's some concern starting to arise around that. I'm not aware of any financial blow ups in Australia over it but there's been some major drama overseas with about 40% of all energy retailers now having officially collapsed (financially) in the UK and more expected to follow.

Price data source = ACCC.
Other comments source = my own knowledge and some from UK media.

 

[divs4ever]

given SKI has already been taken-over , and AST will probably follow , i don't know where this beneficial competition is coming from

 

[frugal.rock]

South Korea Raises Interest Rates Back to Pre-Pandemic Level​

South Korea Raises Interest Rates Back to Pre-Pandemic Level

The central bank increased its benchmark seven-day repurchase rate by 0.25 percentage point to 1.25%.

www.wsj.com

LPG fuel is the highest I've ever seen it, Sydney/Regional NSW

 

[JohnDe]

Australian east coast LNG netback prices (Source = ACCC data):

November 2019 = $6.72
December 2019 = $6.53
January 2020 = $6.29
February 2020 = $5.86
March 2020 = $3.86
April 2020 = $3.73
May 2020 = $3.50
June 2020 = $2.44
July 2020 = $2.29
August 2020 = $2.36
September 2020 = $3.14
October 2020 = $4.71
November 2020 = $5.71
December 2020 = $7.61
January 2021 = $8.73
February 2021 = $19.62
March 2021 = $8.56
April 2021 = $6.44
May 2021 = $7.64
June 2021 = $9.69
July 2021 = $11.74
August 2021 = $14.38
September 2021 = $14.85
October 2021 = $22.18
November 2021 = $39.35
December 2021 = $35.53
January 2022 = $41.24

At the present price diesel or even jet fuel are cheaper to burn than gas is and there's some concern starting to arise around that. I'm not aware of any financial blow ups in Australia over it but there's been some major drama overseas with about 40% of all energy retailers now having officially collapsed (financially) in the UK and more expected to follow.

Price data source = ACCC.
Other comments source = my own knowledge and some from UK media.

Australia price for gas may go up, but that alone will not cause our inflation rate to increase substantially, and it definitely will not effect the US's inflation.

US natural gas futures plunged more than 12% to below $4.3 per million British thermal units, as new weather forecasts showed that temperatures won’t be as low as previously expected in the ten days ahead. Weather updates are poised to make prices more volatile than usual, after expectations of extreme cold at the end of the month drove a 14% jump to seven-week week highs last session.

Natural gas - Price - Chart - Historical Data - News

Natural gas increased 0.64 USD/MMBtu or 27.30% since the beginning of 2024, according to trading on a contract for difference (CFD) that tracks the benchmark market for this commodity. Natural gas - values, historical data, forecasts and news - updated on October of 2024.

tradingeconomics.com

 

[JohnDe]

South Korea Raises Interest Rates Back to Pre-Pandemic Level​

South Korea Raises Interest Rates Back to Pre-Pandemic Level

The central bank increased its benchmark seven-day repurchase rate by 0.25 percentage point to 1.25%.

www.wsj.com

LPG fuel is the highest I've ever seen it, Sydney/Regional NSW

LPG is a dying fuel for consumer vehicles. Which vehicle manufacturer produces an LPG model, and when was the last Holden & Ford LPG model?

Watch LPG prices go up and availability wither, this is an example of what will happen to fuel in the next 20 years, it'll be slower for fuel but the same will happen when vehicle manufacturers slow down production and eventually stop.

 

[JohnDe]

At the present price diesel or even jet fuel are cheaper to burn than gas is and there's some concern starting to arise around that. I'm not aware of any financial blow ups in Australia over it but there's been some major drama overseas with about 40% of all energy retailers now having officially collapsed (financially) in the UK and more expected to follow.

Price data source = ACCC.
Other comments source = my own knowledge and some from UK media.

That's a pretty tall 'comment'

Considering that the average Australian LNG user goes through about 22Gj's per year, and "One gigajoule of natural gas is approximately equivalent to 27 litres of fuel oil, 39 litres of propane, 26 litres of gasoline or 277 kilowatt hours of electricity." And the wholesale price of LNG is "$10.10/GJ - $11.51/GJ ", so at most the consumer is paying $25 for the equivalent of 26L of petrol in LNG.

Wholesale statistics

The AER monitors the performance of wholesale electricity and gas markets and publishes data from that monitoring in reports such as State of the Energy Market and the Wholesale Markets Quarterly. This page provides the key data series' for these markets in the form of charts and data tables...

www.aer.gov.au

 

[Smurf1976]

That's a pretty tall 'comment'

Considering that the average Australian LNG user goes through about 22Gj's per year, and "One gigajoule of natural gas is approximately equivalent to 27 litres of fuel oil, 39 litres of propane, 26 litres of gasoline or 277 kilowatt hours of electricity." And the wholesale price of LNG is "$10.10/GJ - $11.51/GJ ", so at most the consumer is paying $25 for the equivalent of 26L of petrol in LNG.

Ampol terminal gate pricing for diesel is presently in the range of 155 to 160 cents per litre from most terminals nationally. Source = Ampol website.

Note those prices include GST and excise which to compare as a fuel for industry, power generation etc will need to be removed.

Taking the price as 156 cents per litre less GST and excise (43.3 cents per litre) brings that down to 98.5 cents per litre.

38.6 MJ per litre of diesel so that's $25.52 per GJ for diesel at the terminal.

Versus LNG netback price presently $41.24 per GJ and with the forward outlook being:

February 2022 = $40.49
March 2022 = $34.02
April 2022 = $31.14
May 2022 = $31.03
June 2022 = $31.36
July 2022 = $31.93
August 2022 = $31.90
September 2022 = $32.00
October 2022 = $31.89
November 2022 = $32.89
December 2022 = $33.54

Source = ACCC

Now in both cases there's a need to add transport costs to those prices. That is gas pipeline charges and fuel tanker costs for gas and diesel respectively. Both will vary considerably with location and range from trivial to significant.

For the large gas and diesel fired power station that's literally walking distance from the oil terminal it won't cost much at all to run a tanker back and forth.

For one that's 165km away by road and rather near the gas source the opposite is true.

It varies....

Same with industrial users. The cost of transporting the fuel will vary with location. Plus there's the question of whether they're even set up to use something other than gas in the first place - a significant volume of power generation is, some other users are too, many aren't.

The one thing that's avoiding a price spike on the domestic market at present is seasonality. It's summer so in the Australian context that's the season of low gas demand and quite simply production capacity exceeds domestic demand + liquefaction capacity for export, leading to a large price differential between the netback value and the current spot price. Or in simpler terms there's an abundance of gas domestically and a bottleneck which precludes all that being exported, thus leading to a price differential.

Spot prices in Victoria over the past two days being in the $8 to $10 range whilst SA, NSW and Qld it's in the $9 to $10 range.

BUT.....

That's with very low demand. A mere 582 TJ forecast for today for NSW, ACT, Vic, Tas and SA combined versus winter daily demand which routinely runs at roughly three times that level. For example, 1870 TJ on 7 July 2021 - a randomly chosen day of no particular significance, any other mid-winter day will be similar. Data source = AEMO gas bulletin board (which to be fair probably isn't being looked at by anyone outside the energy industry but it's publicly accessible online, just agree to the terms and all good, the data's there for all to see).

Now where the issue emerges is simply that there's a need to curtail gas input to LNG production in order to meet domestic demand in full during the colder months since gas production capacity isn't sufficient to do both at once. That is, gas needs to flow from Qld to SA during winter to meet demand in the southern states (incl NSW) whereas right now flow is from SA to Qld in order to run the LNG plants flat out. The physical capacity to do both at once isn't there.

Now if a GJ of gas is worth $31 to an LNG producer then how likely is it for that gas to be diverted into the domestic market at a far lower price, say $10?

Time will tell but I'm sure I'm not the only one with serious doubts about that happening. Many are thinking that, given the opportunity to export at $31, they'll want the same price domestically and if so we have a huge price shock straight ahead.

That the issue hasn't emerged previously is simply because the LNG wasn't worth overly much. That being the case, the LNG producers willingly sold gas back into the domestic market cheaply rather than putting it into the LNG plants. Not really a problem if the stuff is worth $8 but very different if it's worth $40.

That said.....

Even if I'm 100% wrong on that point and it doesn't end up flowing through to the Australian domestic market, it's still a real, actual price shock that's already occurring for those buying LNG. It's already a price shock across the EU, UK and much of Asia including China and that's a significant event in itself regardless of what happens in Australia. Rather a lot of things are made in China....





Bearing in mind there that it's not about someone cooking dinner at home since the bulk of it's going into heavy industry and power generation. Hence the recent shutdowns of urea production in Europe and elsewhere - it simply isn't profitable to pay that price for feedstock gas unless the price of the product (urea, that's fertilizer and AdBlue in practice) rises to a point where production returns to profit. So it's still adding to price inflation via fertilizers, chemicals, agriculture etc even if Australia escapes it domestically.

A key point about gas is that it isn't a single market. The market I'm referring to is LNG and LNG-linked pricing which in practice is the EU, UK, Japan, China, India, South Korea and a few others as LNG importers and Australia as an exporter with pricing linked to LNG during winter but not during summer on account of capacity constraints.

Somewhere like the US is irrelevant in that context since their market is effectively an island due to limited import and export capacity relative to production and consumption. They do have export and import, just not enough to bring about price linkage unless the margin between domestic production capacity and consumption were to become sufficiently slim that exports could bring about a physical shortage locally. At present that isn't the case in the US.

 

[Smurf1976]

Addition to previous post, regarding the source of gas price charts:

International Monetary Fund, Global price of Natural gas, EU [PNGASEUUSDM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/PNGASEUUSDM, January 14, 2022.

International Monetary Fund, Global price of LNG, Asia [PNGASJPUSDM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/PNGASJPUSDM, January 14, 2022.

To the underlying issue though, I do acknowledge there's always uncertainty with anything looking ahead. I've said a lot about it but I could be wrong in the context of the Australian market. Time will tell, we'll know at the end of winter.....

For those in the EU, UK, China and so on however, it's a definite price shock actually happening.

 

[over9k]

Posted all these in the virus thread, but the "economic consequences of a virus outbreak" is essentially just inflation now:

 

[JohnDe]

Ampol terminal gate pricing for diesel is presently in the range of 155 to 160 cents per litre from most terminals nationally. Source = Ampol website.

Note those prices include GST and excise which to compare as a fuel for industry, power generation etc will need to be removed.

Taking the price as 156 cents per litre less GST and excise (43.3 cents per litre) brings that down to 98.5 cents per litre.

38.6 MJ per litre of diesel so that's $25.52 per GJ for diesel at the terminal.

Versus LNG netback price presently $41.24 per GJ and with the forward outlook being:

February 2022 = $40.49
March 2022 = $34.02
April 2022 = $31.14
May 2022 = $31.03
June 2022 = $31.36
July 2022 = $31.93
August 2022 = $31.90
September 2022 = $32.00
October 2022 = $31.89
November 2022 = $32.89
December 2022 = $33.54

Source = ACCC

Now in both cases there's a need to add transport costs to those prices. That is gas pipeline charges and fuel tanker costs for gas and diesel respectively. Both will vary considerably with location and range from trivial to significant.

For the large gas and diesel fired power station that's literally walking distance from the oil terminal it won't cost much at all to run a tanker back and forth.

For one that's 165km away by road and rather near the gas source the opposite is true.

It varies....

Same with industrial users. The cost of transporting the fuel will vary with location. Plus there's the question of whether they're even set up to use something other than gas in the first place - a significant volume of power generation is, some other users are too, many aren't.

The one thing that's avoiding a price spike on the domestic market at present is seasonality. It's summer so in the Australian context that's the season of low gas demand and quite simply production capacity exceeds domestic demand + liquefaction capacity for export, leading to a large price differential between the netback value and the current spot price. Or in simpler terms there's an abundance of gas domestically and a bottleneck which precludes all that being exported, thus leading to a price differential.

Spot prices in Victoria over the past two days being in the $8 to $10 range whilst SA, NSW and Qld it's in the $9 to $10 range.

BUT.....

That's with very low demand. A mere 582 TJ forecast for today for NSW, ACT, Vic, Tas and SA combined versus winter daily demand which routinely runs at roughly three times that level. For example, 1870 TJ on 7 July 2021 - a randomly chosen day of no particular significance, any other mid-winter day will be similar. Data source = AEMO gas bulletin board (which to be fair probably isn't being looked at by anyone outside the energy industry but it's publicly accessible online, just agree to the terms and all good, the data's there for all to see).

Now where the issue emerges is simply that there's a need to curtail gas input to LNG production in order to meet domestic demand in full during the colder months since gas production capacity isn't sufficient to do both at once. That is, gas needs to flow from Qld to SA during winter to meet demand in the southern states (incl NSW) whereas right now flow is from SA to Qld in order to run the LNG plants flat out. The physical capacity to do both at once isn't there.

Now if a GJ of gas is worth $31 to an LNG producer then how likely is it for that gas to be diverted into the domestic market at a far lower price, say $10?

Time will tell but I'm sure I'm not the only one with serious doubts about that happening. Many are thinking that, given the opportunity to export at $31, they'll want the same price domestically and if so we have a huge price shock straight ahead.

That the issue hasn't emerged previously is simply because the LNG wasn't worth overly much. That being the case, the LNG producers willingly sold gas back into the domestic market cheaply rather than putting it into the LNG plants. Not really a problem if the stuff is worth $8 but very different if it's worth $40.

That said.....

Even if I'm 100% wrong on that point and it doesn't end up flowing through to the Australian domestic market, it's still a real, actual price shock that's already occurring for those buying LNG. It's already a price shock across the EU, UK and much of Asia including China and that's a significant event in itself regardless of what happens in Australia. Rather a lot of things are made in China....

View attachment 135821

View attachment 135822

Bearing in mind there that it's not about someone cooking dinner at home since the bulk of it's going into heavy industry and power generation. Hence the recent shutdowns of urea production in Europe and elsewhere - it simply isn't profitable to pay that price for feedstock gas unless the price of the product (urea, that's fertilizer and AdBlue in practice) rises to a point where production returns to profit. So it's still adding to price inflation via fertilizers, chemicals, agriculture etc even if Australia escapes it domestically.

A key point about gas is that it isn't a single market. The market I'm referring to is LNG and LNG-linked pricing which in practice is the EU, UK, Japan, China, India, South Korea and a few others as LNG importers and Australia as an exporter with pricing linked to LNG during winter but not during summer on account of capacity constraints.

Somewhere like the US is irrelevant in that context since their market is effectively an island due to limited import and export capacity relative to production and consumption. They do have export and import, just not enough to bring about price linkage unless the margin between domestic production capacity and consumption were to become sufficiently slim that exports could bring about a physical shortage locally. At present that isn't the case in the US.

Regardless of how you word it, it is still a lot cheaper for the majority of households in Australia to use natural gas rather than your examples of diesel and jet fuel. As you mention, transport and taxes are involved. The only price households care about is the final bill, not the 'what if, scenarios.

I don't believe that LNG prices in Australia is not a major inflation contributor, our winters not cold enough to cause the issues that Europe and the US have when heating fuel prices go through the roof, but as my previous examples showed, LNG prices have stabilised and even dropped in the US.




Below is my personal natural gas bill.




Saying all that, I will watch the inflation figures closely but I will not panic, because panic causes opportunities to be missed.

 

[Smurf1976]

Regardless of how you word it, it is still a lot cheaper for the majority of households in Australia to use natural gas rather than your examples of diesel and jet fuel. As you mention, transport and taxes are involved. The only price households care about is the final bill, not the 'what if, scenarios.

It's not households I'm thinking about however. At the national level households are only 10.6% of gas consumption after all so whilst it may be an issue for some individuals in terms of personal finances, particularly in Victoria where household use is far higher than elsewhere, overall households aren't the issue.

It's the other 89.4% of gas consumption being used outside the residential sector I'm thinking about and how that may have broader implications.

When business faces a cost increase then they'll pass that onto consumers if they can get away with doing so. They'll only go down the track of cutting profit if they don't have any choice.

Residential as a % of total gas use from Australian Government statistics for 2019-20:

National = 10.6% of gas consumed is used by households

NT = rounds to zero
Queensland = 1.2%
Tasmania = 1.5%
WA = 1.6%
SA = 11.7%
NSW = 21.4%
Victoria = 42.0%

So in economic terms gas is primarily an input to business for the production of something else either goods or services and from an inflation perspective my thinking is that business will at least try and claw back any cost increase by raising prices to consumers of those goods and services. Anything from processed vegetables to plastic pipe, if it's costing them more to produce it then they'll want to recover that cost via higher prices for the product.

Same as things like transport or commercial rents. If the cost goes up then business will at least try and pass that on as a price rise to consumers.

Agreed it's not in the same league as wages etc but I can see it possibly having some impact. Time will tell.

 

[over9k]

Is there a BTU to KWH conversion or equivalent I could use to do some heating calculations or whatever with?

 

[sptrawler]

1 Btu is , 0.001055 MJ

1 MJ is 0.277kwh

1 Btu is 0.000293 kwh
If my thermodynamics serves me correctly.

 

[Smurf1976]

When business faces a cost increase then they'll pass that onto consumers if they can

Expanding on that point a bit and sticking to the subject of inflation not gas per se, some things are common inputs to virtually all businesses or at least the majority.

Capital - someone has invested money, either their own or borrowed, into the business. Either way a return on that capital is expected.

Labour - someone works in the business and labour isn't free. Even if there's no employees, just the owner, they still need to earn enough to live on.

Energy - almost all businesses require some form of energy input be it electricity, petroleum based fuels, gas, coal or whatever but there aren't many that don't have at least some expenditure in this area. It's obviously far more significant for manufacturing than it is for a legal firm but there are very few for whom it's zero.

Now that's perhaps stating the obvious for many but I've mentioned it simply to point out that those three are inputs to virtually every business. Everything from farming to accounting to tourism to dentists have at least some expense in those three areas. They are central pillars for all economic activity.

If any of those rise in cost then it affects the input costs for practically every business and most will at least try to recover that from their customers.

 

[Smurf1976]

Is there a BTU to KWH conversion

1 kWh = 3412 BTU = 3.6 MJ

 

[over9k]

Expanding on that point a bit and sticking to the subject of inflation not gas per se, some things are common inputs to virtually all businesses or at least the majority.

Capital - someone has invested money, either their own or borrowed, into the business. Either way a return on that capital is expected.

Labour - someone works in the business and labour isn't free. Even if there's no employees, just the owner, they still need to earn enough to live on.

Energy - almost all businesses require some form of energy input be it electricity, petroleum based fuels, gas, coal or whatever but there aren't many that don't have at least some expenditure in this area. It's obviously far more significant for manufacturing than it is for a legal firm but there are very few for whom it's zero.

Now that's perhaps stating the obvious for many but I've mentioned it simply to point out that those three are inputs to virtually every business. Everything from farming to accounting to tourism to dentists have at least some expense in those three areas. They are central pillars for all economic activity.

If any of those rise in cost then it affects the input costs for practically every business and most will at least try to recover that from their customers.

I just thought I'd post the corresponding graph:



Simple movement of the supply curve upwards as you've now added X amount (in this graph it's 2 of price) more to the production of each good/service and thus there's less of both producer and consumer surpluses.

Aka everyone loses.

 

[divs4ever]

I just thought I'd post the corresponding graph:

View attachment 135910

Simple movement of the supply curve upwards as you've now added X amount (in this graph it's 2 of price) more to the production of each good/service and thus there's less of both producer and consumer surpluses.

Aka everyone loses.

and what if ?
there are artificial constraints on supply ?
and/or limits on prices ?

and NO , i do not expect a pleasant answer to that , but that is where we are likely to be very soon

 

[JohnDe]

It looks like everyone has forgotten about productivity. Most people do, so don't feel bad

There is always going to be increases in some part of a businesses cost base, the business that can counteract increases with other measures such as 'productivity' will be the most successful. These are the companies that investors look for.

Productivity is a measure of economic or business performance that indicates how efficiently people, companies, industries and whole economies convert inputs, such as labor and capital, into outputs, such as goods or services. Productivity can be measured at any of these five levels.

The Key to Productivity

Explains how to measure and monitor productivity to improve your workforce.

www.netsuite.com

 

[sptrawler]

1 kWh = 3412 BTU = 3.6 MJ

It has been a long time. ?