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Record gas volumes traded amid increased uncertainty

Wednesday 7th August 2019

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Volumes traded on the spot gas market jumped to a record last month as industrial users locked in supplies for the rest of the year.

Trades for 1.49 petajoules of gas were booked on emsTradepoint last month, an all-time high for the six-year-old market and 43 percent higher than the previous record set in August 2017.

General manager Quintin Tahau noted that more than three-quarters of that volume was booked in block trades through to the end of the year.

“I can only speculate that there are some users that want some certainty,” he told BusinessDesk.

“Sellers have gas, and buyers are currently prepared to pay at higher prices for the certainty.”

Gas and electricity prices surged late last year after a series of planned and unplanned gas field outages reduced supplies at a time when South Island hydro storage was low. Gas and power prices remained elevated earlier this year while planned maintenance at Pohokura, the country’s biggest gas field, again restricted supplies.

In June, Contact Energy said it had secured additional winter gas supplies from OMV. It had also inked a deal to buy further gas OMV is aiming to deliver from the Maui field from 2020 through further development drilling.

New Zealand households and heavy industry, including food processors, steel makers, chemical producers and power generators, used about 167 PJ of gas last year. Contact’s latest contract with OMV is for 40 terajoules a day.

EmsTradepoint, owned by Transpower, has traditionally been used by gas producers and major industrial users to help manage daily fluctuations in their production and use. Longer-term contracts – block trades – were generally done bilaterally between the parties.

Tahau noted that the outages at Pohokura last year had created significant uncertainty. Gas prices more than tripled, with the market’s monthly price index reaching $21.08 a gigajoule in October.

He said volume-weighted prices on the market range between $10.23/GJ and $10.28/GJ for the rest of the year, for volumes ranging from 9.2 TJ to 10.2 TJ a day.

Two years ago – before last year’s disruptions – gas typically traded in the $6.50-$7/GJ range.

Tahau noted that part of the increase since then has been due to rising carbon costs – now about $23.60 a tonne – and the gradual end of reduced surrender obligations many major gas users had enjoyed under the emissions trading scheme.

While the firm had been trying to encourage block trading for many years, Tahau said it was not clear whether it would continue. Gas and transmission outages planned early next year may influence pricing and supplies, he said.

OMV plans a 14-day shutdown at Pohokura in March for inspections and maintenance. Transpower also plans a series of one-day maintenance shutdowns on both poles of the high-voltage link across Cook Strait during January, February and March.

(BusinessDesk)



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