Gas price rise good for Origin

A forecast increase in gas prices is good news for Origin Energy shareholders.

Gas producers look to be in for profitable times ahead, with the Grattan Institute releasing a report that suggests Australian gas prices will move closer to the higher internationally traded price, rather than the current lower domestic gas price. The Grattan Institute singles out the significant number of Queensland-based gas export projects as the cause of the move to internationally competitive pricing. Companies with major domestic gas interests include Origin Energy (ASX: ORG), Santos (ASX: STO) and Woodside Petroleum (ASX: WPL).

It is the shift in focus to the export of gas which is changing the dynamics for Australian producers from what was previously a domestically focused industry. It is forecast by the Institute that the rise in gas prices will add $150 to the annual bill for residential customers, with residents in colder climates such as Melbourne particularly affected. The brunt of the price rises will however be much more keenly felt by manufacturers, as only around 10% of gas use is for households, who consume the vast majority of the gas supply. Companies including Incitec Pivot (ASX: IPL) are significant users and a change in their cost base will affect their future capital expenditure plans.

Foolish takeaway

Households are in for leaner times with their utility bills set to rise. At least shareholders of energy producers and utilities can offset this rise through increased profits and dividends.

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Motley Fool contributor Tim McArthur has no financial interest in any company mentioned in this article.

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