Daily Commentary BY THE CURVE TEAM –

Daily Insights – Energy Prices Soar

30th of September, 2021

Energy Price Inflation

  • A culmination of factors across the world have led to energy prices, namely gas prices to increase.
  • Demand for energy has been high this year, with unseasonably hot summers in Asia (including China), which makes up 75% of the world’s LNG imports.
  • Meanwhile, other sources of energy are being squeezed. Droughts in countries such as China and South America has reduced the output of hydropower. In Europe, a lack of wind has blunted the output of wind power. Coal output has been diminished with climate friendly policies across the world.
  • As a result, a lack of supply from non-gas sources of energy has led to price increases and a surge in demand for gas has led to increases for it.
  • A slowing Chinese economy, especially in property development following the fallout of China Evergrande (and a general deleveraging push by the communist party) will reduce the economic benefit from our biggest input.
  • However, with LNG, oil and coal prices increasing, Australia stands to more than offset the falls in iron ore.
  • LNG export face value is expected to rise “87% to $56 billion in the year to June 2022” according to the AFR, with China the primary driver of this increase. Coking coal exports are expected to go from $23 billion to $33 billion. For context, using the start of the year demand and high prices would fetch around $150 billion a year, but with reduced demand and lower prices this will fall.

Macroprudential Reform

  • The Council of Financial Regulators have macroprudential reform to curb rising house prices on their radar.
  • The Council said: “APRA will continue to consult with the Council on the implementation of any particular measure. Over the next couple of months, APRA also plans to publish an information paper on its framework for implementing macroprudential policy.”
  • It is far from imminent, but is widely anticipated at some point next year.

Josh Stewart

Associate - Money Markets