Contact Energy Limited (ASX:CEN) Secures Gas Supply Contract
Contract Overview
Contact Energy Limited has entered into a contract with OMV for the supply of natural gas from the Pohokura field from January 2026 to December 2032. The agreement is contingent upon receiving consent from the Minister under the Crown Minerals Act 1991.
The initial forecast volume for the first year is approximately 3.5 PJ, with a decline anticipated over the contract’s duration. This new gas supply will enable Contact to operate its gas peaking units at Stratford and provide gas to retail customers. Contractual obligations from the current Maui and Pohokura fields are set to expire in December 2024 and 2025, respectively.
Pricing and Future Outlook
The current wholesale gas prices have increased by over 50% since the previous long-term contract negotiations. This surge results in an implied short-run marginal cost exceeding $200/MWh for electricity generated through the Stratford peakers, alongside around $50 million annually in fixed operating costs necessary for their operation.
Contact’s CEO Mike Fuge highlighted the situation: “With an ongoing decline in domestic gas production, the long-term gas market has contracted, and this is reflected in a higher cost of electricity generation from gas.” He further noted the importance of flexible gas generation in supporting the energy transition.
Strategic Initiatives
As part of its decarbonisation strategy, Contact Energy is implementing several initiatives to reduce dependence on gas peakers. These initiatives include constructing a 100 MW grid-scale battery at Glenbrook and planning additional projects, alongside various mechanisms to manage peak electricity demand through commercial and industrial supply contracts and retail products.
Motley Fool contributor Abbie Stokes has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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