Tag: Market Update January 2022

Market Update March 2022

April 8, 2022 by magnum

The Wholesale Electricity Market

Spot prices in the wholesale electricity market increased dramatically during March in both the North and South Island. Average spot prices for the month ranged from $180 in North Canterbury, to $215 in Southland ($110 in Feb) in the far South, and to $210 ($165 in Feb) at the top of the North Island as depicted in the following chart.

The following chart shows average weekly spot prices over the last 2 years. The significant increase in prices, especially in the South Island, in March are clearly visible on the far right of the graph.

Electricity Demand

Electricity demand increased slightly in March – now back in line with levels seen at the same time in the last 4 years, apart from 2020 when demand was impacted by the first Covid lockdown.

Electricity Generation Mix

Continued attempts to conserve water has accelerated the reduced hydro and increased thermal generation observed last month as shown in the following graph.

HVDC Transfer

Power transfers on the HVDC link connecting the North and South Islands are important both in showing relative hydro positions and also the reliance on thermal power to meet demand. High northward flow tends to indicate a good SI hydro position, whereas the reverse indicates a heavy reliance on thermal power to make up for hydro shortages.

March saw northward transfer reduced further as SI hydro generators tried to conserve water and a considerable increase in southward transfer compared to February.

The Electricity Futures Market

The Futures Market provides an indication of where market participants see the spot market moving in the future. They are based on actual trades between participants looking to hedge their positions (as both buyers and sellers) into the future against potential spot market volatility. They are also a useful proxy for the direction of retail contracts.

The following graph shows Futures pricing for CY 2022, 2023, 2024 and 2025 at Otahuhu (Auckland) from the start of 2020 to the end of March.

Note that $100/MWh equates to 10c/kWh.

The increase in prices observed through February, after the announcement from Rio Tinto that they wanted to keep the Tiwai Aluminium smelter operating after 2024, continued into the start of March before levelling off somewhat in the second half of the month. CY 2023 prices closed at $177 – a 13.5% increase for the month. CY 2024 also increased throughout the month finishing at $156 – a 7.5% increase. CY 2025 ended the month at $136.5/MWh – a 6% increase.

Trying to balance this on the supply side a number of new solar projects were announced during March which could be up and running very quickly if approved. Known projects shown below.

Hydro Storage

The inflows continued see-sawing back to the very low inflows seen a couple of months ago, punctuated by the flooding that occurred in February. SI inflows for March were less than 50% of average. The Waiau catchment feeding Manapouri Power Station has experienced its lowest inflows on record for January to March and both lakes Manapouri and Te Anua are operating in their low ranges where output is constrained to meet strict guidelines. NI inflows were low for the start of March but recovered somewhat in the second half of the month.

As a result of these low inflows energy storage levels in New Zealand’s main hydro storage lakes dropped through March. Storage ended the month at 3,012 GWh or 67% full, down 871 GWh over the month.

As noted last month – things can change quickly in the NZ electricity sector. This month storage has plummeted on the back of low inflows and a limited ability of other electricity supplies (due in part to their own fuel constraints) to slow that rate of decline. Security of supply risks are again raising their head.

Snow Pack

Snow pack is an important way that hydro energy is stored over the winter months and released as hydro inflows in the spring. The following graph shows that snow pack has decreased over the last month as you would expect through summer. Storage is now below the mean level (close to the 25 percentile) we would expect for this time of year in the important Waitaki catchment (feeds approx. 50% of the SI hydro generating capacity.)

Climate outlook overview (from the MetService 2 Feb 2022)

Climate Drivers — La Nina is in a slow declining phase across the tropical Pacific, with a return to near-neutral El Nino-Southern Oscillation (ENSO) conditions expected late Autumn, slightly slower than previously signalled. The tropics remain active, with potential for a Tropical Cyclone to develop early next week near Vanuatu. This will need watching with respect to New Zealand weather but may just materialise as humid northerlies. The Southern Ocean is expected to remain mostly settled for the first half of April, with a lower potential for cold outbreaks. Sea temperatures around New Zealand remain well above normal, with temperatures sitting at 2deg above normal for this time of year.

April 2022 Outlook — High pressure dominates the weather maps in early April, bringing mostly dry conditions across Aotearoa New Zealand. A weather system from the Tasman Sea is forecast to move onto the South Island from the 5th, though rainfall may be welcome, accumulations are unlikely to significantly impact the ongoing drought across Southland, Otago, and Queenstown. When the South Island weather system reaches North Island shortly afterwards, it will bring a couple of showery days and little more. From around the 8th, tropical activity near Vanuatu may grab the attention of MetService expert meteorologists who will keep a close eye on any potential developments and their significance for New Zealand. Whilst this has the potential to deliver heavy rain, with strong high pressure across the country, we may see any advance from the tropics diverted away from our shores. This late season potential storm increases the uncertainty in the outlook and creates a potential split in the forecast path. Whilst the high may well be eroded from the north, the Southern Ocean looks likely to become more active at the same time. If this scenario wins out, then it would herald the onset of a spell of westerly mobility for South Island. We may see a series of fronts move through in quick succession, but with diminishing returns as they head further north. The second half of April should see the return of high pressure in the Tasman Sea, limiting further rain to minor southwesterly showers or cold fronts. It also looks likely to hold any further Tasman Sea rainmakers at bay.

The Gas Market

Gas prices were up dramatically in March. Average prices were $18.16/GJ – 45% up on February.

On the supply side, the following graph shows a slight drop in March. Maui production maintained the higher levels achieved since completion of the successful infill project. Many days exceeded 110TJ until the last few days of the month when it reduced to about 90TJ.

Pohokura output continued its very gradual decline evident over the last couple of years finishing the month averaging around 85TJ per day. McKee / Mangahewa decreased output as well – averaging around 80TJ for most of the month before dropping to 60TJ at the end of March. Kupe maintained output averaging around 70TJ/day.

Long term the situation at Pohokura will not improve significantly until the operators complete drilling to improve output, currently due to occur late 2022. Drilling programs are also currently on-going at Maui and Kapuni, however we do not expect the supply/demand balance to improve significantly until late 2022 or early 2023.

Increased requirements for gas for electricity generation during March saw Huntly’s gas usage lift again increasing up to about 80TJ per day by the end of the month. TCC also started operating for the first time in 8 months – using up to 40TJ per day at times during March. Methanex Motonui backed off gas usage to around 165TJ/day on average – while Methanex Waitara also spent much of the month not operating. The following graph shows trends in the major gas users over the last 3 years.

Global energy prices remained high during March as on-going lack of gas storage / supply in Europe has continued to result in elevated wholesale prices for gas and electricity. On top of that the war in the Ukraine and the potential for sanctions on critical gas supplies from Russia has added to the uncertainty and therefore further added to energy prices.

LNG netback prices increased in March to $44.57/GJ – a 48% increase on last month. Prices for the remainder of 2022 are expected to average $38.2/GJ (a 5% increase on last month) while 2023 netback prices were static at $25.11/GJ – still well above historical levels.

New Zealand does not have an LNG export market so our domestic prices are not directly linked to global prices. However, some of our large gas users deal in international markets which are impacted by global gas prices and they may try to produce more in NZ (increase demand) to take advantage of lower gas prices. Methanex recently announced that they expected to produce 10% more methanol in 2022 in NZ than they did last year driven in part by “robust methanol prices.”

The Coal Market

The global energy crisis has been as much about coal as it has gas. The war in the Ukraine has driven energy prices, including coal, up. After starting the month at around $US300/T, prices increased to new record levels of almost $US420/T before falling and now settling at close to $US280/T.

These prices are still well above anything seen in the last 10 years as shown in the following graph.

Like gas, the price of coal can flow through and have an impact on the electricity market. Genesis has been importing significant amounts of coal over the last 2 years for electricity generation at Huntly, though Genesis has pointed out that most of this has been purchased at contract prices significantly below international spot prices. When running, these units often set the marginal price. Even when Huntly is not setting the market price, hydro generators factor in increasing fuel costs in determining the prices they will offer into the market, again flowing through to higher electricity prices.

Carbon Pricing

NZ has had an Emissions Trading Scheme (ETS) in place since 2008. It has been subsequently reviewed by a number of governments and is now an “uncapped” price scheme closely linked to international schemes. However there are “upper and lower guard-rails” set up to prevent wild swings in carbon price that act as minimum and maximum prices. Currently these are set at $70 and $20 respectively. Over the last few years the Carbon Price through the ETS has climbed as shown in the following graph. Prices are now over twice what they were just over a year ago. In March prices eased slightly to $76/t – still well above the $70 upper guardrail requiring the Government to release additional units in an attempt to dampen prices.

As the carbon price rises, the cost of coal, gas or other fossil fuels used in process heat applications will naturally also rise. Electricity prices are also affected by a rising carbon price. Electricity prices are set by the marginal producing unit – in NZ this is currently typically coal or gas or hydro generators, with the latter valuing the cost of its water against the former. An increase in carbon price can lead to an increase in electricity prices in the short- to medium-term (as the marginal units set the price). A carbon price of $75/t is estimated to currently add about $37.5/MWh (or ~3.75c/kWh) to electricity prices. In the long term, the impact should reduce as money is invested in more low-cost renewables and there is less reliance on gas and coal-fired generation.

European greenhouse gas emissions continued to decline in March. They are still almost twice the price they were a year ago, as concerns are raised about the amount of coal that may be burnt in Europe if Russian gas is sanctioned or reduced in any other way. The recent downturn is counter-intuitive, however, may be explained by traders having concerns that governments may intervene in the market, even suspending it, as these higher EUA prices start to impact more on energy prices. It could also be caused by trader’s pricing in an increasingly likely economic recession (and coinciding reduction in energy use) in Europe.

About this Report

This energy market summary report provides information on wholesale price trends within the NZ Electricity Market.

Please note that all electricity prices are presented as a $ per MWh price and all carbon prices as a $ per unit price.

All spot prices are published by the Electricity Authority. Futures contract prices are sourced from ASX.

Further information can be found at the locations noted below.

Transpower publishes a range of detailed information which can be found here: https://www.transpower.co.nz/power-system-live-data

The Electricity Authority publishes a range of detailed information which can be found here: https://www.emi.ea.govt.nz/

Weather and Climate data – The MetService publishes a range of weather related information which can be found here: https://www.metservice.com/

Disclaimer

This document has been prepared for information and explanatory purposes only and is not intended to be relied upon by any person. This document does not form part of any existing or future contract or agreement between us. We make no representation, assurance, or guarantee as to the accuracy of the information provided. To the maximum extent permitted by law, none of Smart Power Ltd, its related companies, directors, employees or agents accepts any liability for any loss arising from the use of this document or its contents or otherwise arising out or, or in connection with it. You must not provide this document or any information contained in it to any third party without our prior consent.

About Smart Power

Smart Power is a full-service Energy Management consultancy. Apart from Energy Procurement, Smart Power can also provide:

Technical Advice on how to reduce your energy use/emissions
Sustainability Reporting
Invoice Management services.

We also offer boutique energy and water billing service for landlords/property developers.

Contact us at https://smartpower1.wpenginepowered.com/contact/ or ring one of our offices to talk to one of our experienced staff about how we can assist you with achieving your energy goals.

Market Update February 2022

March 7, 2022 by magnum

The Wholesale Electricity Market

Spot prices in the wholesale electricity market decreased during February, especially in the South Island. Average spot prices for the month ranged from $110 ($147 in Jan) in the South, to $165 ($168 in Jan) at the top of the North Island as depicted in the following chart.

The following chart shows average weekly spot prices over the last 2 years. The significant decrease in prices, especially in the South Island, in February are clearly visible on the far right of the graph.

Electricity Demand

Electricity demand decreased in February – less than the levels seen at the same time in the last 4 years. (Note that the Transpower error observed last month has been corrected this month)

Electricity Generation Mix

Continued attempts to conserve water has maintained the reduced hydro and increased thermal generation observed last month as shown in the following graph.

HVDC Transfer

February saw a continuation of reduced northward transfer as SI hydro generators tried to conserve water. There was also a small amount of southward transfer.

The Electricity Futures Market

The following graph shows Futures pricing for CY 2022, 2023, 2024 and 2025 at Otahuhu (Auckland) from the start of 2020 to the end of February.

Note that $100/MWh equates to 10c/kWh.

As foreseen in this report last month Rio Tinto announced at the start of February that it wanted to keep the Tiwai Aluminium smelter going after its planned closure in 2024. Accounting for about 12.5% of national electricity demand the aluminium smelter has a significant impact on national electricity prices. The market response was immediate with all calendar years’ increasing, but particularly the later years of 2024 and 2025. CY 2023 prices increased throughout the month, closing at $156 – an 8% increase for the month. CY 2024 also increased throughout the month finishing at $145 – a 14% increase. CY 2025 showed the largest increase ending the month at $129/MWh – a 23% increase!

Trying to balance this on the supply side a number of new projects were announced during February. Meridian announced plans for a battery / solar installation at Ruakaka and a wind farm at Mt Munro, Mercury is looking at adding capacity to its Ngatamariki geothermal power station, and Contact is looking to expand its Tauhara geothermal station. A number of other solar schemes are also being worked on which could be up and running very quickly if approved. Known projects are shown below.

Note that Mercury has completed commissioning the Northern section of Turitea wind farm – 119MW. However, the Southern section (102MW) may not be completed until mid-2023. Also, Genesis has announced that FRV Australia will be its joint venture partner to build 500 MW (750GWh pa) of solar generation by 2025 mainly in the North Island. The first location will be confirmed in early 2022.

Genesis also announced a biofuel trial at Huntly that could have a major impact on the life of the ageing station. In the trial, they are looking to use advanced wood pellets to replace coal on one of the 4 Rankine (250MW) units at the site. If successful it could allow Huntly to provide a renewable dry-year energy storage solution and extend its life beyond 2040.

Hydro Storage

After January’s record low inflows, rainfall returned with a roar in February. Early February saw over a metre of rain in 24 hours in some South Island catchments, while in mid-February ex Tropical Cyclone Dovi crossed the North Island delivering high winds and flooding in some areas. Many areas set new record rainfall levels for February. The impact of these events can be seen in the following hydro catchment inflow graphs.

As a result of these high inflows, energy storage levels in New Zealand’s main hydro storage lakes increased through February. Storage ended the month at 3,883 GWh or 88% full, up 428 GWh over the month.

A month is a long time in the NZ electricity sector – highlighted in this case by the dramatic turnaround in energy storage and the reduced risk of future supply shortages. In January the plummeting storage was a real concern for energy security for 2022. The high February inflows have eased a lot of those concerns for now although, with dry weather expected to continue, this reprieve could be short-lived.

Snow Pack

Snow pack is an important way that hydro energy is stored over the winter months and released as hydro inflows in the spring. The following graph shows that snow pack has decreased over the last month as you would expect through summer. Storage remains close to the mean level we would expect for this time of year in the important Waitaki catchment (feeds approx. 50% of the SI hydro generating capacity.)

Climate outlook overview (from the MetService 2 Feb 2022)

Climate Drivers — La Nina has now peaked in the tropical Pacific and is declining. A return to neutral El Nino–Southern Oscillation (ENSO) conditions is likely for autumn. The tropics to the north of New Zealand remain active, with moderate potential for another Tropical Cyclone to form this week over the Coral Sea. However, an intense High remains stubbornly in charge over New Zealand this week and should fend off any tropical visitors. The Southern Ocean remains relatively settled across the first half of March, meaning cold outbreaks and autumnal fronts will be infrequent and mostly lacking oomph. Seas around the New Zealand coastline remain abnormally warm, with temperatures running near 2 degrees above the normal for the time of year.

March 2022 Outlook — A high prevails over Aotearoa this week, bringing a drier spell with somewhat cooler conditions. A cold front tries to break this pattern early next week, to deliver rain over the far south of the country, but it may not progress well against the intense High. Ditto for any tropical easterlies to the north of New Zealand. For most of the country, next week continues on the dry side, with a return to well above average March temperatures.

For the second half of March, temperatures remain well above average. Highs are also likely to remain prevalent over our weather maps, especially over the South Island, but at this time of year, the odd front will make inroads (and bring passing rain). Intermittent easterlies are likely to continue across the upper North Island for the back half of the month, with top-up showers possible there.

Overall, a warmer than usual March is forecast. Below normal March rainfall is forecast for most regions, with the exception of Westland, Fiordland, Southland and Otago (near normal tallies there).

The Gas Market

Gas prices were up again in February. Average prices were $12.54/GJ – 8.9% up on January.

On the supply side, the following graph shows a slight pickup in February. Maui production increased again with a number of days exceeding 110TJ. Maui averaged 105TJ/day, up from 95TJ/day in January.

Pohokura output was largely steady at 88TJ/day for the month apart from a couple of days at the start of the month when there appeared to be a shutdown. Due to the outage average output was 79.5TJ, down 10% in January. McKee / Mangahewa decreased output as well – down 2% to 81.5TJ/day while Kupe maintained output averaging 69.5TJ/day.

Long term the situation at Pohokura will not improve significantly until the operators complete drilling to improve output, currently due to occur in late 2022. Drilling programs are also currently ongoing at Maui and Kapuni, however, we do not expect the supply/demand balance to improve significantly until late 2022 or early 2023.

Increased requirements for gas for electricity generation during February saw Huntly’s gas usage lift by a further 15% over the month (after a 23% increase in January). Stratford was also generating at similar levels to January. Methanex Motonui backed off gas usage to around 171TJ/day on average – down 4% on the month while Methanex Waitara started back up in early February operating at 6TJ per day. The following graph shows trends in the major gas users over the last 3 years.

Global energy prices remained high during February as the ongoing lack of gas storage/supply in Europe has continued to result in elevated wholesale prices for gas and electricity. On top of that, the war in Ukraine and the potential for sanctions on critical gas supplies from Russia has added to the uncertainty and therefore further added to energy prices.

LNG netback prices reduced in February as the European winter drew to a close, but remained high compared to historical levels at $30.06/GJ – a 23% decrease on last month. Prices for the remainder of 2022 are expected to average $36.3/GJ (the same as last month) while 2023 netback prices increased to $25.80/GJ ($23.71/GJ last month.)

The Coal Market

The global energy crisis has been as much about coal as it has gas. After the increase in prices last month due to Indonesia (the world’s largest coal exporter) banning all coal exports, this month saw that ban overturned at the start of February. However this provided no price relief as the outbreak of the war in Ukraine has seen a refreshed rally in prices – now exceeding $US300/T – a further 35% increase in the month over levels that were already at record highs.

These prices are well above anything seen in the last 10 years as shown in the following graph.

Carbon Pricing

NZ has had an Emissions Trading Scheme (ETS) in place since 2008. It has been subsequently reviewed by a number of governments and is now an “uncapped” price scheme closely linked to international schemes. However, there are “upper and lower guardrails” set up to prevent wild swings in carbon prices that act as the minimum and maximum prices. Currently, these are set at $70 and $20 respectively. Over the last few years, the Carbon Price through the ETS has climbed as shown in the following graph. Prices are now over twice what they were just over a year ago and have risen again during February to $78.5/t – well above the $70 upper guardrail requiring the Government to release additional units in an attempt to dampen prices.

European greenhouse gas emission rights eased slightly in February. They are still about three times the price they were a year ago, as concerns about the amount of coal burnt during the European winter flowed through to increased demand for EUAs. It will be interesting to see if governments intervene in the market as these higher EUA prices start to impact more on energy prices.

About this Report

This energy market summary report provides information on wholesale price trends within the NZ Electricity Market.

Please note that all electricity prices are presented as a $ per MWh price and all carbon prices as a $ per unit price.

All spot prices are published by the Electricity Authority. Futures contract prices are sourced from ASX.

Further information can be found at the locations noted below.

Transpower publishes a range of detailed information which can be found here: https://www.transpower.co.nz/power-system-live-data

The Electricity Authority publishes a range of detailed information which can be found here: https://www.emi.ea.govt.nz/

Weather and Climate data – The MetService publishes a range of weather related information which can be found here: https://www.metservice.com/

Disclaimer

About Smart Power

Smart Power is a full-service Energy Management consultancy. Apart from Energy Procurement, Smart Power can also provide:

Technical Advice on how to reduce your energy use/emissions
Sustainability Reporting
Invoice Management services.

We also offer boutique energy and water billing service for landlords/property developers.

Contact us at https://smartpower1.wpenginepowered.com/contact/ or ring one of our offices to talk to one of our experienced staff about how we can assist you with achieving your energy goals.

Market Update January 2022

February 8, 2022 by magnum

The Wholesale Electricity Market

Spot prices in the wholesale electricity market increased dramatically during January. Average spot prices for the month ranged from $147 ($45 in Dec) in the far South, to $168 ($67 in Dec) at the top of the North Island as depicted in the following chart.

The following chart shows average weekly spot prices over the last 5 years. The lower prices in December are just visible on the far right The following chart shows average weekly spot prices over the last 2 years. The significant increase in prices in January are clearly visible on the far right of the graph.

Electricity Demand

Electricity demand increased in January back to levels seen in 2019/20. The normal post-summer shutdown increase can be seen in recent weeks. (Note – I believe there is an issue with this Transpower graph that I have raised with them in that I think they deleted 2021 data at the start of this year but renamed the other years – so what is labelled 2019 is actually 2018, etc.)

Electricity Generation Mix

Increasing demand and attempts to conserve water have fed through to reduced hydro and increased thermal generation in January as shown in the following graph. Wind generation has also been down compared to recent months.

HVDC Transfer

January saw reduced northward transfer as SI hydro generators tried to conserve water. There was also a small amount of southward transfer.

The Electricity Futures Market

The following graph shows Futures pricing for CY 2022, 2023, 2024 and 2025 at Otahuhu (Auckland) from the start of 2020 to the end of January.

Note that $100/MWh equates to 10c/kWh.

In January, CY 2023 prices increased at the start of the month peaking at $148.5 before dropping later in the month, closing at $144 – a 2% increase for the month. CY 2024 also increased throughout the month peaking at $131 before finishing the month at $127 – a 3% increase. CY 2025 is shown for the first time this month – it was largely flat ending the month at $105/MWh.

Lower prices for CY 2023, CY 2024 and CY2025 are based on an expectation that a new generation is developed over that timeframe – known projects shown below.

Meanwhile, on the demand side of the equation, expectations are increasing that the Tiwai aluminium smelter will continue to operate beyond 2024. High aluminium prices and the relatively low emission content of aluminium produced at Tiwai is likely to lead its owner, Rio Tinto, to want to extend operations past the current contracts end date. Accounting for about 12.5% of national electricity demand the aluminium smelter has a significant impact on national electricity prices. Any negotiations are likely to start as early as this year.

Hydro Storage

The story of the last month has been the historically low Hydro inflows during January. A four week period in January saw the lowest inflows on record in the NI and the second-lowest on record in the SI.

Energy storage levels in New Zealand’s main hydro storage lakes decreased through January. Storage ended the month at 3,455 GWh or 78% full, down 417 GWh over the month.

As shown in the following graph, storage has plummeted over the last month losing more than 15% of total (full) storage in just over a month! On the current trajectory, storage will very quickly become a problem and with concerns remaining around thermal fuel supply, the ability to suppress this decline may be constrained. With the potential for below-average inflows over the next few months, it is understandable that some red flags are starting to be raised.

Snow Pack

Snow pack is an important way that hydro energy is stored over the winter months and released as hydro inflows in the spring. The following graph shows that snow pack has decreased over the last month as you would expect through summer. Storage remains close to the mean level we would expect for this time of year in the important Waitaki catchment (feeds approx. 50% of the SI hydro generating capacity.)

Climate outlook overview (from the MetService 2 Feb 2022)

Climate Drivers — A maturing La Niña event in the tropical Pacific is close to its peak. A return to neutral El Niño–Southern Oscillation (ENSO) conditions is likely this autumn. The persistent positive Southern Annular Mode (SAM) phase is predicted to continue through the first half of February. This supports Highs over the South Island and southern latitudes and reduces the chance of Southern Ocean weather systems sweeping up the country. In contrast, an ‘active’ tropics, with humid northerlies and Tasman Sea lows, should prevail this week and into early next week, before Highs build back in across most of New Zealand by mid-month.

February 2022 Outlook – Rainfall Extremes – Extreme rainfall is signalled to start February – then forecasts show a return to an extended dry run. A Red Warning for Heavy Rain is currently in force for Westland and Buller. Red Warnings are reserved for the most significant weather events. This is only the fifth Red Warning MetService has issued since the colour coded system was introduced in 2019. Rain accumulations are forecast to be 500-750mm about the Westland ranges over 2 days, and disruptions are expected.

For all other areas, a burst of rain is expected between now and early next week (7th February), associated with two weather features moving across the country. Expect more rain in the next 7 days, than seen across all of January, in your region. Many North Island areas should also see locally heavy falls and decent totals, but picking who sees the best of the rain is challenging so far out. After the middle of next week, expect another extended drier-than-normal run, as prevailing Highs build back in across the country, with easterly winds returning to Auckland and Northland.

February is forecast to be hotter than usual, overall. The exceptions are the eastern areas of both Islands, where monthly temperatures are expected to fall closer to February normal.

The Gas Market

Gas prices rebounded in January. Average prices were $11.51/GJ – 18.9% up in December.

On the supply side, the following graph shows a decline again in January. Pohokura output decreased slightly, producing 88TJ/day for the month, down 2% in December. The recent gas injection program has had some success at improving flows above the 80TJ/day in October though production is again waning over time.

Maui production started the month strong, peaking at over 100TJ/day in the middle of the month before easing back to closer to 90TJ/day. Maui’s average for the month was 94.5TJ/day down 3%. McKee / Mangahewa decreased output as well – down 7% to 83TJ/day while Kupe maintained output averaging 69TJ/day.

Increased requirements for gas for electricity generation during January saw Huntly’s gas usage lift by 23% over the month while Stratford was also generating solidly for most of the month. A Maui pipeline shutdown over the last weekend in January limited gas usage north of Mokau in the Waitomo area – restricting gas supply to Huntly and to a number of other large users in the North. Methanex Motonui maintained high gas usage in the first half of the month but reduced in the second half to around 178TJ per day. Average use was 180TJ per day, up 5% on the month. Methanex Waitara continued to operate at 6TJ per day until the 22^nd of January when it shut down. The following graph shows trends in the major gas users over the last 3 years.

Global energy prices remained high during January as the ongoing lack of gas storage/supply in Europe and geopolitical disputes impacting supply out of Russia have continued to result in elevated wholesale prices for gas and electricity. Companies heavily reliant on gas and/or electricity have scaled back production or, in some cases, ceased operations completely.

LNG netback prices reduced slightly but remained high at $39.11/GJ – a 5% decrease on last month. Prices for next year are expected to average $36.3/GJ (compared to $34.46 last month) while 2023 netback prices increased to $23.71/GJ ($18.66/GJ last month.)

The Coal Market

The global energy crisis has been almost as much about coal as it has gas. After a quadrupling of prices through most of 2021 followed by the large falls in October driven by the Chinese Government intervening in their market, coal prices rose again sharply through January. Indonesia, the world’s largest exporter of thermal coal used for power generation, banned all exports of coal for January to protect their domestic supply. This caused a spike in international coal prices up to $223USD/T in recent trading – an increase of 30% over the month. These prices are well above the levels seen in the last 10 years as shown in the following graph.

Carbon Pricing

NZ has had an Emissions Trading Scheme (ETS) in place since 2008. It has been subsequently reviewed by a number of governments and is now an “uncapped” price scheme closely linked to international schemes. However, there are “upper and lower guardrails” set up to prevent wild swings in carbon price that act as the minimum and maximum prices. Currently, these are set at $70 and $20 respectively. Over the last few years, the Carbon Price through the ETS has climbed as shown in the following graph. Prices are now over twice what they were just over a year ago and have risen again during January to $76/t – well above the $70 upper guardrail requiring the Government to release additional units in an attempt to dampen prices.

European greenhouse gas emission rights increased markedly again in January. They are now about three times the price they were a year ago, as concerns about the amount of coal likely to be burnt during the European winter flowed through to increased demand for EUAs. It will be interesting to see if governments intervene in the market as these higher EUA prices start to impact more on energy prices.

About this Report

This energy market summary report provides information on wholesale price trends within the NZ Electricity Market.

Please note that all electricity prices are presented as a $ per MWh price and all carbon prices as a $ per unit price.

All spot prices are published by the Electricity Authority. Futures contract prices are sourced from ASX.

Further information can be found at the locations noted below.

Transpower publishes a range of detailed information which can be found here: https://www.transpower.co.nz/power-system-live-data

The Electricity Authority publishes a range of detailed information which can be found here: https://www.emi.ea.govt.nz/

Weather and Climate data – The MetService publishes a range of weather related information which can be found here: https://www.metservice.com/

Disclaimer

About Smart Power

Smart Power is a full-service Energy Management consultancy. Apart from Energy Procurement, Smart Power can also provide:

Technical Advice on how to reduce your energy use/emissions
Sustainability Reporting
Invoice Management services.

We also offer boutique energy and water billing service for landlords/property developers.

Contact us at https://smartpower1.wpenginepowered.com/contact/ or ring one of our offices to talk to one of our experienced staff about how we can assist you with achieving your energy goals.