Prices for gas deliveries to Victoria in May inched lower from a week earlier on expectations of higher production and weak heating demand.
Market participants expect utilisation rates at the 1,115 TJ/d (29.9mn m³/d) Longford gas processing plant to rise in the coming weeks in the run-up to winter, despite a decline in production this week. Utilisation rates at Longford stood at 66.4pc this week, down slightly from 69.5pc last week.
Prompt prices in the Victorian Declared Wholesale Gas Market (DWGM) stabilised above the A$4/GJ mark this week, which some market participants see as a breakeven price for Victoria gas. And producers may offer more gas into the market if prices stay above A$4/GJ. The average traded price on the DWGM was around A$4.41/GJ this week, little changed from A$4.46/GJ a week earlier but down by 8.7pc from A$4.83/GJ on 10 April.
The Bureau of Meteorology in its latest three-month outlook has forecast a 60-80pc chance of higher than normal temperatures for May, which is expected to keep a lid on heating demand across the east coast for May-July. A mild start to winter will likely keep prices suppressed at around A$4.50/GJ. But there is a possibility they may climb to A$5.50/GJ next month and to A$6/GJ in June, if temperatures fall from next month.
Drawdowns at the 26,000TJ (694mn m³) Iona underground storage at Port Campbell have already begun, signalling pockets of heating demand as a result of intermittent cold weather. Capacity at Iona peaked at 77.74pc on 22 March amid mild temperatures and reduced demand because of the Covid-19 outbreak, which eased to 71.72pc as of 23 April. Market participants expect storage levels to remain stable until June, when a rise in demand is expected to increase the pace of withdrawals.
There are currently no coal outages in Victoria, with the 560MW No.3 unit at the AGL-operated Loy Yang A coal plant having resumed operations on 22 April. Market participants do not expect month-ahead gas prices to edge up even if outages occur because of cheaper alternatives such as wind power and the likelihood that any outage will be short term.
But prolonged outages at coal-fired plants in the neighbouring state of New South Wales could generate inter-state demand for gas and lift prices above A$5/GJ in May, depending on how low temperatures fall. Four coal-fired units with a total capacity of 2540MW in New South Wales are off line, including one unit each at the Bayswater, Eraring, Liddell and Vales Point power stations. It is uncertain when these units will return to operations.
Month-ahead prices for Wallumbila prices edged lower this week, pressured by a continued decline in power prices because of ongoing lockdown restrictions to limit the spread of Covid-19.
A few power utilities have been seeking gas to meet evening peak demand, and this situation is expected to continue into May and possibly June. But weak power prices are weighing on bids for May, keeping them between mid-A$3/GJ and A$4/GJ, or as much as A$1.50/GJ below offers. The average spot price for a 30-minute contract in Queensland stood at A$31.88MWh this week, down from A$33.23MWh the week before.
