Queen’s Jubilee celebrations; Wong continues his visits to the Pacific; The government in the face of the energy crisis

The gas price spike has been variously described as “apocalyptic” and “a perfect storm.”

But Australia’s energy problems did not come out of nowhere. A confluence of short-term and long-term economic, geopolitical, political, and even weather forces drove prices higher.

The consequences for households and businesses are now unavoidable.

Why have prices skyrocketed? And is there anything to do?

Credit: Artwork: Jamie Brown

Why have gasoline prices increased so much, so quickly?

A big part of the story was the war in Ukraine.

Energy prices were rising before the Russian invasion as the global economy accelerated after a crisis caused by the pandemic. But the conflict triggered a sudden and dramatic global supply shock as companies and governments around the world rejected huge oil and gas supplies from Russia.

As Russian President Vladimir Putin’s brutal invasion intensified, millions of barrels of Russian oil per day were pulled from world markets and several massive energy infrastructure projects were shelved.

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The impact was no different from the oil crisis of 1973, when members of the Organization of Arab Petroleum Exporting Countries imposed an oil embargo targeting countries that had supported Israel during the Yom Kippur War. The 1973 crisis ultimately led to a dreaded combination of stagnant economic growth and high inflation. Economists have called it “stagflation”.

There were also domestic forces at work. Australia’s aging coal-fired power plant fleet has been plagued by unplanned outages. This has cut electricity supply from the power grid, adding to the pressure on gas, which (unlike coal) can be increased in the short term as an alternative source of electricity generation.

According to Australian Petroleum Production and Exploration Associationinterim CEO, Damian Dwyer. This has limited the impact of the extraordinary price spike – for now.

Dwyer said the rest of the market is hedged by more volatile immediate “spot” prices, subject to the whims of global markets. Either way, high spot prices tend to drive higher costs as new contracts are traded.

Read more: Why are gas prices so high and what does this mean for your electricity bill?

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