Hello I’m Sage and thanks for joining me on Kalkine TV for Smart Market Insights.
Australian Treasurer Jim Chalmers has described it as a “perfect storm”. Rising energy prices
have added to a hefty list of concerns facing the average Australian as Australia’s energy crisis
hits fever pitch. The underlying problem is complex, with little hope of things
changing anytime soon. However, the newly elected Labour government will have to seek a solution.
A closer look at the scenario shows that depleting coal reserves are the centre of the energy crisis.
With households managing soaring prices of things like food and groceries , the additional pressure
created in the energy industry has only further tightened consumers' hold on their wallets. Amidst
a potential drop in consumer demand, talks of recession have, once again, garnered attention.
Meanwhile, Australia has only just begun its interest rate tightening cycle. Rising interest
rates have further clouded the outlook for Australian borrowers and has done much to further
destabilise the economy. Due to the high number of mortgage loans being taken out,
the Australian economy has become extremely sensitive to interest rate changes.
Eraring, Australia's biggest power station, is quickly running out of coal and the station
will be closing in 2025, seven years earlier than expected.
Meanwhile, Origin Energy - the coal supplier to the
Eraring power station - has recently seen severe production constraints.
The coal stockpiles of Origin Energy at its Lake Macquarie plant, north of Sydney, have been
running low according to the company's statement to the Australian Stock Exchange. Consequently,
Origin Energy has had to source coal from alternative sources, where prices are higher.
The Russia-Ukraine war has exacerbated supply constraints throughout the globe,
which has also put upward pressure on energy. Moreover, Russian sanctions have made all
international sources of commodities highly expensive. Not to mention the
higher transit costs of transporting coal from nations farther away from Australia.
Origin Energy is far from the only company witnessing this problem, which has led to an
overall hike in the price of coal. As Australia's power supply mostly comprises
coal-powered stations, the problem has only worsened the case for its energy market.
So what is the solution? A switch to renewable energy could be the most
viable at this moment with the recent election evidence of the Australian public’s acknowledgment
of the need to switch to more sustainable alternatives such as solar and wind energy.
Among the many policies of the Anthony Albanese-led Labor party,
measures to work against climate change seem to have resonated the most with the voters.
These claims have helped land him a win in this year's federal elections.
On the other hand, fossil fuel exporters have escaped unscathed by the rising commodity prices.
However, the gains incurred by fuel exporters
could end abruptly if the Australian Domestic Gas Security Mechanism is
triggered – a mechanism put in place to avoid the depletion of domestic resources.
As exporters continue to profit from the rising prices, some of these gains
are floating into the Australian economy too. However, at this moment a shift to
renewable energy seems to be a good option to relieve the current price pressures.
Well, that’s all for now. We will be back again with the
exclusive Smart Market Insights Show tomorrow. Till then, keep watching
Kalkine TV for the latest market updates and related insights. I’m Sage, signing off