Origin Energy Limited (ORG) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Origin Conference Call. [Operator Instructions] I'd now like to hand the conference over to Mr. Frank Calabria, Chief Executive Officer. Please go ahead.

Okay. Thank you very much, and thank you, everyone, for joining the call today. I'm joined by our leadership team. So I will just make some opening remarks, and then we'll move to questions. And happy to take your questions by me and the team. So clearly, the reason we're here is the announcement we made this morning. And what I would probably want to do is just, I suppose, highlight, firstly, in relation to '22, what we see happening in our business, but also what we see more broadly in the market and how that interplay is coming together that's led us to updating our guidance. So clearly, what we've seen is we've updated it overall, overall be in line. But you can say it's a tale of 2 stories. One is Integrated Gas is continuing to perform strongly. And you can see that through the guidance there. But what we have announced is, at the same time and probably where most of the questions I'm sure will arise, is in relation to the Energy Markets guidance. So why are we updating that today? There's been very recent events that have actually really resulted us landing in this position today. And that's really as a result, in our circumstances, of having recent under-delivery of contracted coal by Centennial, coinciding with us, therefore, needing to secure further coals limited by rail and some sort of client chain that is associated with sort of rail movements and cancellation rates of rail. And to the extent we've not been able to cover the energy position through those 2 matters, then clearly, we have a small amount but nevertheless exposed to spot prices, but those spot prices, I think, you could all observe in the market, has accelerated dramatically over the last week or 2. What we see in the market right now is that overall is that it's actually an electricity supply matter that we're observing. So the combination of, in our case, obviously, operational performance from Centennial side. If you had to look across the market, the combination of that associated with outages associated with, I think, rail and also you've got floods in the Queensland market. You've really got a lot less capacity of electricity or a lot less output coming from the coal plants. And that's, therefore, drawing a lot of gas into power generation. And clearly, we've also been running our gas-fired power plants at high capacity to manage the position. But the very recent sort of under delivery relative to our last guidance by Centennial, which was associated with specific matters regarding Mandalong and even their Eraring coal mine has meant that we're, therefore, not being able to produce our energy at the cost we are anticipating on a blended basis. And as a result, that's led to the upgraded guidance in May and June. Clearly, there's a lot going in the market more broadly. And you're seeing that through gas prices, wholesale electricity prices, and you're seeing that play through in retail. If as a result of that coal supply delivery, which by the way continues into '23, specifically regarding Mandalong that has led to us to withdraw guidance, we gave that guidance in '23 based on certain commodity and market outlook. And clearly, that's changed. And the reason we've withdrawn it is just that there's a large range of outcomes based on the supply of energy, the wholesale markets and how they play out over the coming 12 months. Clearly, what we have is 2 businesses, though we still have the benefit of the higher gas prices and oil prices flowing through Integrated Gas. And what we have in Energy Markets is really the ability for us to manage the electricity price, which is the key variable, but also we have the benefit of the gas business in there as well that's largely fixed price, but it is due to those large -- that large range of outcomes that has led us to releasing what we had this morning. There might be -- so I maybe will just hold that there. I'm sure there'll be questions that are coming for a variety of people, and it's probably best that we leave that to you to ask those questions, and that should open up on the various matters through the course of the conversation. So operator, we may will now go to questions.

[Operator Instructions] First question comes from Ian Myles with Macquarie Group.

A couple of questions for you. Can we think about -- before we get into the coal side, the risk that you'll do on the retail and C&I. Should we be expecting Origin to be basically shedding load or repricing load quite aggressively higher because of your short position?

So clearly, we will need to manage the C&I load appropriately in these circumstances we're in. We need to balance that between customer relationships and also how we think about managing our risk position. I might just ask Greg to answer a little bit more in depth of how we've been conducting ourselves in that context. Greg? So if you want to just give some supportive comments to that, that would be great.

Yes. Market, Ian, as you know, C&I gets repriced at the market. And we've seen significant increases in the forward curves of both gas and electricity. So we will be repricing on that basis. But I've got to say that in the past months, we have probably -- we have not been that competitive in C&I for some months now. But again, we'll weigh up how we work with our customers to give them a good solution.

It's clearly actively managed not just today, Ian, but over the last several months to just make good calls in the context of our position.

I hope to look on the [ stock milk ] side of it. Can you maybe give us some clarity on how you got into the position? I bet here a physical hedge failure of the coal mine not delivering the tonnage, but in your statement, you still say you haven't actually got a long-term fixed cost to your coal yet.

Yes. So I think happy to talk through that. So historically, over the last, I don't know, how many years, Ian, there's been a base load supply of coal that's come from those adjacent mines operated by Centennial. And they have, until this year, largely delivered on those contractual commitments. This year, what we have found for the first time is that they've underdelivered on their existing mine commitments by over 1 million tonnes. So that's the first thing. And you're right, that we've relied upon that as being a base load of physical, call it, cost supply. Secondly, on top of that, we would then contract from a variety of other sources, but generally to a much smaller volume, if you could think about our volumes over time. So through the course of this year, they've had operational matters across a variety of their mines and Greg can talk through that. Their focus and our focus initially had been to get the operational performance. We have, therefore, extended the existing contract into this financial year, which was the first priority. They had a fair bit of operational stuff and, therefore, requested that the negotiations for the future contracts therefore take place immediately after some of those operational matters. And so we've been in discussions with them about those future contracts for some months now and had been certainly in negotiation with them before even -- well before Christmas last year. Well before -- nevertheless we find ourselves in a situation where they've been interplaying between both their operational reliability and their ability to, therefore, enter into those term contracts beyond. So that's how we have landed here. And clearly, the Mandalong mine matter has only emerged very recently to do with some specific aspects geologically with that mine. But nevertheless, that's how we've landed. It's the physical edge. It's not running a short position in any other way. It's actually even been a supply of that. And we've risked that down, source of the coal. And that is -- the constraint on the other coal is largely due to rail access. So we've been getting coal, but over recent times, we've also seen cancellations on train delivered coal. So they're the 2 aspects, Ian, that have driven to this.

Your next question comes from Peter Wilson with Credit Suisse.

Just want to get a bit of a feel for, I guess, the uncertainty in the range to FY '23. And I guess relative to the assumptions in terms of your coal and electricity costs that underpin the prior guidance of $600 million to $850 million, what have you locked in? Because it seems like someone has been buying the electricity curve, for example. So I guess kind of what have you locked in relative to those original assumptions? And to what extent are you still short to spot price outcomes for the next 12 months?

Yes. So I'm probably not going to be specific enough for you on that answer, except to say that we've contracted certainly some coal in the next year, but we have -- we're only partway through that. So there's more coal to contract into that as well as obviously making sure that the existing coal contracted is delivered. And we would have already -- we've also been in the market in terms of purchasing both swap cover in that market as well. So we're partway through that. We're not completely done in that respect. And therefore, we still have a range of outcomes on electricity associated with them. I probably can't say more about the contracting at this particular point in time, except to say we've made progress since last time, but we'll continue to update you as we have more to share. Greg, I might ask you just to add any other color in terms of the book in the portfolio that you might want to provide Peter as well.

Yes. Peter, where we've made significant progress on the coal contracting is, what I call the rail coal, right? So outside Centennial, we've made significant progress. And what we're assuming at the moment is we're still averaging 2 trains a day into the power station. Now the other point which I'd like to make here is that we are working on how we can improve deliveries of coal on our rail lines. So we are still working very hard on that as well with government and the rail providers. Clearly, with Centennial just with all the operational issues they're having, I can go into detail here. But essentially, that they're a part of the coal mine in Mandalong, which is problematic. And so they are really having geological risk. They're waiting on new equipment, which has been delayed because of supply issues, what have you. And so given all that, we are working very closely with Centennial, and that's a key priority as well. So that probably give you some flavor just where we are in -- with coal.

That relates to the Mandalong. We're continuing to deliver under the Myuna Bay, which [indiscernible].

But Peter, sorry, there's 2 car mines next door to Eraring. It's Mandalong and Myuna. Myuna is actually delivering well. It's actually improved in recent times. So we are talking to them about that but it's the Mandalong mine specifically where there's probably more geological issues at the moment.

That's another way to look at it. So I think you said that the shortfall has been 1 million tonnes. I assume that's '22, I don't know if that's '23, but...

That was a '22 comment, the original 4 million-plus tonnes that's contracted. And you may recall, that's the same comment that I may have -- I raised at the last guidance that said they're under delivering what we forecast, and in fact, they've come in a bit lower than even our risk forecast to that as a result of the events of recent -- very recent times. But yes, so that's the flow on. That comes into next year, okay, and gets delivered. And so therefore, we've got a variety of other contracts we've got to walk away and have locked away for next year as well, obviously, FY '23.

Okay. So I expect that's very complicated because it depends on both what you sold and like in terms of supply, but that's -- would you be able to give any guidance to say Eraring, 12 terawatt hours maybe short 1/4 of that 3 terawatt hours or any kind of quantum you can give as to how short you are?

No, I can't give that quantum today. And the reason I say that is because we're in the midst of a whole range of coal contracting that are quite well advanced and others that we're continuing to secure supply. So that's really the combination. You've heard the previous comment around managing the C&I load. And so therefore, I really can't give a quantum now just to let you know that there's a range of outcomes because the other key things associated with that as well is then how we think about forward prices on the supply coming in. So that's the reason why we haven't gone with that today, and it just feels like there's a little bit to play out before we give you that range. I don't think it would be particularly helpful because the range of outcomes based on particularly the wholesale price market could be -- continue to be wide.

Sure. Okay. That's it. One last one on equity. Is there any liquidated damages or any way to recover the losses from your cost supplies?

I think that will be difficult based on the nature of the way coal contracts are negotiated, but probably -- yes, I wouldn't leave you with an impression that that's where we'll land. But still to play out. Yes.

Basically they're largely volume makeup causes.

It tends to be that, yes.

Your next question comes from Mark Samter with MST.

I don't know if this is a fair question, Frank, on a public conference call and I'll ask you to, hopefully, to kind of, sort of, an answer. But I mean it feels like Australian electricity market, so pretty much where European markets were 5 months ago in the future, this morning and on an inordinate amount and 10 days after an election, that's was pretty unpalatable. You got to feel there's a pretty meaningful risk of intervention. I guess do you have a view on what a sensible industry itself can do to resolve electricity markets where they are and what you think could be sensible moves by policymakers as well?

Look, yes, I probably won't give it in the context of a specific policy move. But the key matter that I think industry and government need to work through to is, in fact, how they actually lift the output of the coal generation capacity here, which is as a result of a number of matters, and I expect, except that some of those aspects are driven by sort of outages, which may not be immediately reparable, but there's a lot of others that I think are driven by the supply chain and the fuel getting to those coal power stations and bringing that plant. And I think that's the starting point. But that, I think, only just goes to the output of those plants and may not be how that converts to policy, but I think that's where the main focus needs to be. You've seen a market now where the wholesale prices orders a magnitude above what can be recovered through a DMO. And so I think there will also be -- you've seen a number of small retailers already withdraw offers from the market. Most others have got a level of integration at the top level. But I do think that the other key point is how do you end up recovering that wholesale market into. And my experience from watching the U.K. is they had to come up with a variety of measures that went to the stability of the sector, but secondly, went to how you recovered it over time. Now I think that we'll need to work with governments about that because, otherwise, you're going to find what you've observed now is what I would agree. You're in the same situation where everything is very similar to the U.K. market and the cap prices weren't designed to achieve those outcomes. So I feel it's going to be a combination of those 2 areas. I'm not sure if that's helpful. But therefore, if you want to convert that into policy language, but the reality is a lot of people are highlighting it to be a gas matter, and we would see more of the root cause right now coming from the power sector and the demand that's drawing from the power sector that's sending gas into that sector and the combination of those international prices. So therefore, it needs to be a combination of those things.

Perfect. Maybe just another quick question, if I could. I probably can piece this together from the answers you gave, but I'm a bit slow. If we look at the -- we've locked $120 million of both ends of the guidance for FY '23. Just to give us a feel of how the rest of the business is performing, should we think about actually the issues with the coal supply have caused more than $130 million impact [indiscernible] purpose?

If you talk about what was going on. So clearly, the gas business is largely a fixed price gas business within energy markets. So the benefit of those gas prices, whether we sell it through to our energy, through to our electricity book or not. But nevertheless, that's performing very well and provides us with some benefits there. And clearly, the Integrated Gas business is performing well, and there's nothing really that's changing the way it continues to operate. Clearly, the situation in terms of the electricity has the range of outcomes simply because it's the combination of even small volumes of fixed supply and very high wholesale prices. Until it's risen a bit, we've been able to effectively manage that between our integrated book line. So that will give you an indication of sort of recent escalation in price and the volume and they're very sensitive to those numbers.

So quick follow up if I can. Just to Pete's question about low liability for some, kind of -- even though it's a geological issue and LNG, you have geological issues, you'd have to make good cargoes to your customers.

Yes. Greg, do you want to talk about that? They will make good targets, the question is that it's through that volume makeup rather than compensation. So yes, they're obliged to do that. Greg, do you want to add some comments to that?

Yes. I mean, that's right. But I think more importantly, here, Mark, it's just how they move forward to become tip-to-mine, just how do we get more production out of these mines. And look, in fact that they are facing harder. There's a part of the mine, which is hard to get coal at. They're trying to move away from those sections of the mine to get better sense, but they're also waiting for new equipment as well, which has been an issue for Centennial. I can't comment on everything here, but now they are working hard to get more production. And therefore, we're working very closely with them.

Yes, it does impact to Ian's comments earlier because the reality is its operational delivery of contracted volumes that's, even though we've contracted out more short-term volumes even against our risk view that's come at an unfortunate time. But let's just say, given the rest of the tightness of the market.

Your next question comes from Rob Koh with Morgan Stanley.

Frank, please drill just a little bit into the FY '22 numbers following the chain of thought that Mr. Samter had. Your new guidance range for energy markets for FY '22. At the half year, you said your gas margins were doing better versus PCP. And I guess, versus that comment, are you now saying that they've gone even better with gas prices?

Tony, did you want to pick it up? I think they have gone better, but we're now running at more full capacity of your whole gas book. So they certainly have thick skin but not to the extent of the downside of electricity, clearly. Tony, did you want to pick that up or...

Yes. So look, you're right, at the sort of term, we had a location from electricity to gas and then we still get a benefit even when we look forward to the close to June, but it's only a fraction really of what's come about from the reduction in coal. So it's not enough for us to maintain guidance on that level. So it is still benefiting.

Yes. I guess what I was hoping is that you've got 11 months of the year under your belt. So ordinarily, if you have to narrow the range, and then obviously, you have to rewiden the range because of the pricing quantity, electricity scenario. Is that the way to understand it?

Yes. That's the way to understand it. It's not really a need to widen it from a gas perspective.

Yes, yes. Okay. That makes sense. If I then try to think about quantities, are you able to be a bit more specific about Mandalong's under delivery, say, per month or per quarter? Is that kind of like -- is that a quantity that you could comment on?

Rob, no. Initially, we're probably going to through Eraring -- we can -- we'll probably run about 10 tariffs. Clearly, in past years, we've run a lot higher than that. But what I can say around Centennial is we have a $4 million contract. We've under delivered on that. In recent times, they actually did -- just recently, they had a longwall. That longwall finished earlier because of issues, and they're currently out of production, right? So it's a very recent issue that we've seen, if that makes sense. So it changes from day to day.

Yes. I see. I see. Okay. All right. My last question, if I can. I guess, a more durable solution to all of this issue is to put more renewables in the ground. What are you hearing from your developer colleagues or counterparts in the market about ability to install new kit? Has that been also supply chain impacted?

Look, that's the opportunity here, Rob. That's the exciting piece. This pace is like the transition and, quite frankly, if we look at our own renewables, not only we're talking to all the entities out there for opportunities. But clearly, we're making significant progress on our own renewables and storage for that matter, opportunities going forward. So -- and I think it certainly -- we have a carbon zero business, and I know a lot of customers are more interested in getting more renewables in their portfolio. So that is the opportunity.

Rob, I think that just execution of all those projects, whether it's transmission, renewables, others have all got the same. They've all got supply chain, they've all got matters. I think that the imperative, I think, over time will be that renewables come into the market. I think we've got that -- there are probably different time horizons. So the stuff that does come in, but the immediate -- I think the immediate focus needs to be on the existing tip delivering greater output today, and that's got a variety of -- it's got a variety of causes, but I think it can still be improved, yes.

Your next question comes from Nik Burns with Jarden Australia.

Just a couple of questions from me. Just first of all on your gas side -- sorry, on the fleet. You mentioned in one of your responses that higher electricity prices just to run gas harder. We've been doing that in recent times. And the reason is you talked about your ability to flex up hard on the gas fleet when prices are high. So can you talk about your capacity to increase output from your gas power stations in FY '23? I guess, given where -- I guess, the state of your own gas book, the opportunity to sell that gas into the -- on the high spot price market? And how much reliance you have on, personally, alternate gas supplies from the spot in order to ramp up? I'm just wondering if there's a limit to how much you can -- how hard you can actually run your gas generated in -- over the next 12 months.

Yes. Greg, I might just you might talk about how we're running the gas fleet and how you're thinking about supply of gas into it and what we can do over time.

Look, I haven't got quantum here. But right now, we -- our gas book is very healthy, and we're certainly running our gas fire generation much harder. So I just haven't got quantum -- Tony have you got numbers there?

Sorry, on how much harder the gas fleet is running? Not in front of me. Unless, Gordon, have you got the numbers in front of you here? I mean it is definitely running harder.

Maybe we just take that notice, and just a way of example, I mean, only 3 or 4 months ago, we had very low prices and dialing down. This morning, we're running at flat out 600 mg. So you can just see how harder the whole market is running gas harder because of the lower output from coal. And that's not just for Origin, but it's all of market. We are seeing significant less coal being generated from Queensland coal-fired generators. New South Wales coal-fired generators. And we've seen some issues in Victoria from just outages and what have you. So gas is really making up the difference with that lower coal generation occurring. Yes, that's not a smaller issue, very short term, but we've seen just with La Nina, especially, just more cloud cover. So it's been a lot less solar generation as well, which is affecting things as well.

But gas supply generally is flexible enough to ramp it up. It's just choice is limited at the moment. I don't think that's the constraint at the moment. Is that right?

That's correct.

Yes. That's what I think was getting at, so we can [indiscernible].

Got it. Just on Mandalong, you're not the only customer for Mandalong Coal. Are you aware if other customers are being as impacted? Just wondering if everyone is wearing the pain equally or just a proportional share of that because your coal contract prices are lower than others, for example.

Nik, there's 2 coal mines next to Eraring. Myuna goes straight into Eraring. So we're negotiating on that. So that goes nowhere else. Mandalong can supply -- it does supply other domestic coal fire gas stations. Vales being the closest one. But they also are clearly big exporters as well. So there's competing markets here.

So does that mean that you are -- the potentially export market that volumes might be higher or flat? And is that your coping [indiscernible].

Today, it's just not producing. So previously, it's -- that coal can either go to export or domestic. So we can go both ways, yes.

So before, I think they were sending it to both while they were managing what they were delivering. Today, it's obviously not producing at all. And -- but you're right, there are other customers domestically as well, we think, they are also impacted.

Your next question comes from Dale Koenders with Barrenjoey.

You've mentioned that really the downgrade for FY '22 guidance is all around coal and the cost of by-electricity. You said there's also occurred recently for, let's say, 5 weeks in FY '22. Guidance have gone down by $100 million. Should we be thinking that the burn rate for FY '23 guidance will be the order of $20 million? Are there any offsets one way or the other? Or is it not always [indiscernible].

Tony, do you want to give a -- try and give a perspective around '23 range of outcomes?

Well, yes, '23 difficult to forecast, and I'll start, I'm not really going to give you the numbers that you want specifically. But yes, with these elevated prices and just the level of volatility, then even quite small changes in position have quite large P&L impact. So we're seeing a much, much, much wider range of outcomes in 2023. And even you can see in the balance of 2022, the volatility causing us to have a quite wide range given you've only got 4 or 5 weeks of this to go. Yes. So it's -- there's scenarios where -- that we run where maybe coal is constrained. And then there were scenarios we run where we're able to contract and cover elements of it. And there's other scenarios where we can return to higher levels of production out of Eraring, which is really good scenario. So it's just such a wide range. We need to get through the next little while just to be able to narrow that range really.

Through the winter period?

Yes, just on the winter month.

We have lost connection with Dale. Next question does come from Gordon Ramsay with RBC Capital Markets.

Frank, I'm just interested in the coal contracting strategy going forward. How many suppliers you might be looking at and what is the goal kind of good coal gap?

So our -- the coal supplies for Eraring has always been through the base sort of large proportion has always come from the adjacent mines given the -- and the fact that they're linked by conveyor and in fact in my own and not linked to the export market either. And then we've supplemented that by rail. So it really is -- we are sourcing coal from a range of suppliers and have done so for some time, and we've ramped up those volumes and therefore, clearly, diversification of supply has been always part of our strategy, but we've ramped it up further. The key aspect in terms of ramping it even further is getting access to more rail capacity. And that's -- the strategy has been that for some time, and we've been executing against it. We have seen very recently, not to add to this, but just to highlight that we've also seen through COVID and then bunch of -- a number of operational factors on rail that there's been a higher cancellation rate as well. So that's a very recent phenomenon. But nevertheless, clearly, we will be focused on the diversification, but the rail loaded coal will be -- there will be an upper limit. As Greg says, if you can get to 4 trains a day, that would actually boost that supply, but that would represent at the upper limit of what you can bring by rail.

And just one, if I may. Just on the Eraring kind of marginal cost of supply. I know in the half year result, you showed that it was going up. Obviously, the coal cost. Can you give us any feel for what that is at present? A year ago, it was $55 a megawatt hour, and it's moved up.

It's certainly moved up. I mean, it's a blended average of some market-based contracts and legacy contracts today, so it's gone up. I don't have a pinpoint number for you, Gordon, unfortunately, I just don't have that on top of my head. But it's certainly much higher than where it was. But the main aspect associated is that if you can't get that, then you're bringing an export coal or sourcing that on market or running, I guess, peakers, so you're actually getting closer to marginal cost for that -- for those incremental volumes at the moment that are not coming through those core contracts. Some contracts were certainly negotiated better than market terms as well. But I don't have a pinpoint number for you.

Your next question comes from Max Vickerson with Morgans.

A couple of questions from me. So first of all, just on -- look, everyone has been talking about baseline prices, and that's obviously quite important. But I'm just wondering with caps kind of really shutting up as well, does that pose difficulties in terms of the retail business? Or do you think your gas peakers are kind of able to manage the cost of any peakiness in retail demand or you potentially need to buy caps as well as swaps?

Good question. Greg, do you want to talk through capitalization versus swap?

No. This is -- our position on managing capacity is fine. We've got the gas peakers in the portfolio and what have you. What we're really doing with this average energy price has been much higher.

So we feel adequate [indiscernible], Max. So that's not a feature. It's all about just having enough physical supply of energy in the system.

Got you. Okay. And just a follow-up on one of Gordon's questions when you were talking about the alternatives if you need to rail coal in. Obviously, there's the difference between export prices and domestic prices that you highlighted at the half year results. Is it easier, potentially, to overcome some of those logistical issues getting trains if you're offering prices closer to export? Would that make a material difference, do you think?

It's not getting -- it's easy to get the coal. It's really the rule, the trick here is the logistics. That's the key. And that's what we are trying to improve, and we're talking to the various counterparties, the rail, the people, including government, just to increase that. I believe if the coal is there, is what I'd say. And again, we buy the lesser quality, of course. So in saying that it's significantly increased in price in current market conditions.

Your next question comes from Daniel Butcher with CLSA.

I guess one question more on the gas side. I was curious, the aggressive spot gas pricing that had a cap price on [indiscernible]. Just sort of curious how you sort of think about the moving parts and the impact of that on your APLNG and your businesses and also on the supply and sales side. And I guess a second part of that question is around, back in APLNG we sold 7 cargoes probably in March 12, I think, including the COVID outflow in June quarter. Do you think that that's sort of the gas point that will be still roughly the ADGSM being both? And how you sort of set that risk?

Yes. So firstly, yes on the APLNG, just more broadly. And I've got Andrew here with me. But from our perspective, so the commitment to the spot cargoes was made. It's a decision made by a joint venture of APLNG. Very, very conscious and broad in meeting its obligations and supply a lot of coal domestically. I think we're probably 25%, 30% in gas -- sorry, a lot of gas. And domestically, 25%, 30% on that. So clearly, the joint venture will make decisions as it goes forward, but those commitments have been made previously to the current -- what I would say, the very recent circumstances. And I think that when we are looking at a market that's got both, call it, sort of supply pressure more broadly in the energy market. But that's actually their important consideration to both industry and policymakers to make good decisions going forward. As it relates to the energy markets, gas position, Greg, but the cap that's come in, in the states. Any impact to the way you think about the gas book really at the moment?

No, it's still important to have the gas contracted to maneuver in this market. But yes, you're right, Daniel, just oil, gas or -- I think it's oil and gas market now that captures $40 from that. So -- but that doesn't change our requirement getting gas and putting through power stations. And again, we talk to all counterparties, including the LNG industry about sourcing more gas to bring it down to the southern markets where it's required. So we're doing all that.

I think it just means that you're making decisions across the portfolio on a pre [indiscernible] basis to get to the highest value use.

Maybe just remind us how much of your gas supply book is not fixed price and how much is oil linked or how much is spot? Can you buy on the EM side?

I think in '23, financial year '23, it's largely fixed as an agreed or...

Yes, it's all fixed. It's all fixed.

It's all hedged in the 12 months.

Sorry, I don't mean to push the point but it sounds like you're not really -- I guess, it's too risky to sell any spot cargoes in the second half given where gas [indiscernible] connected with?

We haven't and we won't. I mean the joint venture have to make a decision at the time. But I think they will just make decision based on all of the considerations of what's happening in the local market and its obligations and everything. It's hard to make a pre-impact because that would be a joint venture discussion. I would just say that they would be very -- the joint venture would be very attuned to what's going on in the market when it makes its call. But I don't think there's going to be a call for a little while, yes.

[Operator Instructions] Your next question is a follow-up question from Ian Myles with Macquarie Group.

And just sorry, just a couple of quick questions. The coal loader at Eraring or Mandalong, what's the limitations on that, millions of tonnes per annum?

So with Mandalong, it could be rail unloader at Eraring as compared to Mandalong, just here Eraring [indiscernible].

Yes. So I'm not sure which loader it was.

Yes, yes, yes. That's okay. That's fine. Yes. So the Eraring unloader, Ian, and I can't really comments, so I'll just give you -- we, at times, we've got as much as 5 trains a day for a short period of time on that rail.

Are they 10,000 tonne trains or just 4?

4,000 tonnes.

About 4,000 tonnes.

4,000 tonnes of smaller trains. Recently, we've been averaging 2 trains a day. Clearly, they're working hard to increase that capacity, that would love to operate at 4 trains a day. But what we need to do is manage all the logistics of the rail. Where Eraring is located, it's -- we have to deal with Sydney trains, community train, other issues such as that. So that's why we're working very closely with the rail, and that's the opportunity to increase that. And I hope that makes sense. To put it I haven't done that, Ian, but just probably not to work on that.

And just on -- you talked about the volatility in your business. Can you reframe that, are you really now very exposed to unplanned outages, transmission failures in the system, which spike the electricity price into really high levels that you're actually actively in spot markets trying to cover positions because your volatility? If you're hedged, shouldn't be that large.

Ian, I'm trying to make some comments as well. We significantly reduced our short position through not winning as much C&I, if you like, and buying contracts in the marketplace. So we certainly did that. What's really driving this is, sometimes we've moved Eraring from -- this issue is going to be tender. Again, we've managed to get 16 teras out of that plant. It's really -- our short position is exacerbated by just not getting as much coal as we thought we would. And that's, once again, that small short position with the current prices we're seeing become big numbers. And so we've been actively managing this issue for some time. But again, we would have been -- we'll be in much position -- a better position. We just got more coal. As simple as that. Yes.

And not really a capacity issue because we've got enough capacity to manage shorter duration, high price events. It's more that we've got this flat, very high price and very -- you just can't run as hard as you want into those sort of prices.

So were you able to make your decision whether you lock on the partner, the way I describe it, locking the losses by using hedges or take a risk of hoping those electricity markets will normalize to something more acceptable.

Or by new -- or buy more coal or get more coal.

Or find more coal. And one final question. The retail gas price, we've seen massive movements in both long and short-term gas prices. You're coming up to a period of repricing that gas at the retail market. Are you going to be as aggressive as the wholesale prices would suggest to the retail market, whether we're looking at 20% or 30% price rises?

Yes. So we've got to make a judgment what we do on 1 July, Ian. And then we also, in the non-Victorian states, will make -- be able to make a judgment also throughout the year. So that's a call we'll make. I'm not sure that we will go as aggressively as to where they sit in the spot market today, Ian, they'll go -- but they will be up. Yes, they will be. I'm not sure percentage-wise, but maybe. I'm not sure that'll be as high as you just described, but they'll be up.

Well, just alluding to you comment that your gas book is principally fixed now, those price rises actually convert into being the offset to the pain we're feeling in the coal side of the market.

Yes. And then we've got -- you're right. And then we think about where that gas goes to our retail customers, it goes to power generation and would also go to large C&I customers, and we'll make that assessment. As it relates to gas, there's not the equivalent of a prudent retailer, Ian. So it's generally been based on supply cost as it goes -- as it comes through. We don't -- we'll have to make a judgment. Passing through the full market price of that gas through the retail customers would be, as to where it stands today, would be a significant leap. And we haven't got that yet on that, but we will assess the market and we have to keep pricing it further through the year, we'll make that decision. Yes.

And one final question. How much -- and sorry, it's back on coal. How much inventory is sitting at Eraring?

It's about 250,000 tonnes to 280,000 tonnes, I think. Plenty of that order. They're low levels, Ian. And that's, again, I think we're seeing low levels of coal inventory right across the market.

Next question is a follow-up question from Peter Wilson with Credit Suisse.

I just want to understand a little bit better what happened in FY '23. I guess last I've done in the half year, it was made clear that you had to do subsequent coal contracting for Eraring. Is it -- you entered into contracts and the coal suppliers cannot meet those contracts or were they just never actually ended up entering into these contracts?

We've done a bit of both, Peter. We entered into some contracts, and there's also been prolonged negotiations on some others that have been linked to also some of the operational matters and therefore, the volumes they're going to contract into the next year because there's an interplay between the two. So there's actually -- there's been both. So not a willingness, it's just the compliments around entering into contracts based on some of the operational matters, but we've also added the hours.

Your next question comes from Reinhardt van der Walt from Bank of America.

So we had the DMO come through last week, and we normally see the market prices at about 1/4, 20% spread below the DMO. Is there room to price closer to the DMO in FY '23, especially if we start seeing smaller retailers leave the market and reducing the level of competition?

Yes, there is. That's judgment as to where we move market contracts relative to the default offers. But I guess the answer to your question is a judgment about what we think the market contracts that may be discounted to that DMO and where we think we can listen. But what you've described is available as a choice to us. Yes.

Got it. Yes. And so look, I mean, the coal capacity issue, it seems to be an ongoing issue for a while now, given different factors, whether that's there's a bit of weather-driven, some supply chain and even some sort of technical technology issues. Are we looking like permanently higher cap price environment for the coming years, especially if we start seeing that capacity being replaced by battery storage at potentially higher margin cost?

Look, it depends when you say what's a longer term issue. I actually don't see the coal necessarily as a longer term issue because what we have is a bunch of outages, and it depends on what the duration of the long-term thing is. We'll have outages, we'll have supply chain, we've also got low solar and we've got low wind at the moment. But we do need -- and there are aspects into the next year, which we've guided also around supply chain and making sure the right cargoes get there as well as logistics. And also, you've got Queensland impacted by the flooding, impacts of some of their coal mines and also they've got some export. So I actually think that coal -- I might be courageous quite here. I'm not sure it's going to be a longer-term issue. But nevertheless, you've seen over the last 6 or 9 months that we've seen this underperformance that's had a big impact on us. I think storage and other matters will -- by the time they come into the market, I still think you've got a flat energy and remember, storage is only operating on short duration. And I'm not sure that's the key issue at the market today. I do think as we customize forward with more renewables coming in, there's no doubt that storage like lithium-ion batteries will capture shorter-term spikes and may well benefit when you're sitting at 300 or 400 flat or whatever, 300 flat prices as well. But nevertheless, I don't think that's the key driver today. I think that's actually a medium-term consideration.

And maybe just one last question. You mentioned that you're expecting contract with gas tariffs to likely step up towards the spot wholesale prices. Do you think we're getting closer to the point now seeing some demand destruction, especially maybe in industrial?

Well, I think that's the key consideration as to how we -- how prices do play through the customers. The question before previously was around what would be tariff decisions on retail customers and given where they've been and the costs and so forth. So there's going to be a judgment in that. And that's certainly the judgment we need to make because in some respects, we're actually running gas very hard for our power generation. But you will see the prices are very, very high in gas for a long period of time. You will see demand destruction. And so we still do need to make good decisions with customers in mind as well. And as well as our shareholders. So that's a balancing act that we can go forward with.

Got it.

All right. Thank you very much for all of your questions. Clearly, the questions focused very much on that coal related matter and the variability of outcomes and from our perspective, clearly, and also when we see FY '23, I just want to leave people the view that we do see a range of outcomes that are both very high and also that go low as well, but it is actually the sensitivity to that that's been the real reason for withdrawing guidance. And hopefully, you can see that what we're really playing out right now is it's also over this winter period. So certainly, we'll continue to keep you updated I know there's always a time where you want more detail around that. We're also in the midst of a whole range of market interactions, and that makes that more difficult. We'll just continue to update it. And clearly, we still have -- not overshadow, but we just clearly continue to have strength in the Integrated Gas business and our gas portfolio, which does give us some diversification to our business and the key matter for hand right now is how we, I think, as an industry and as a participant with governments manage the wholesale price of energy. It could be a stress point across the system. And clearly, we've got to own our own situation regarding sort of delivery of coal that's been a sort of a catalyst for us leading to this announcement today, but we certainly feel that we're overall in a very good position over time, and we just got to make sure we navigate this issue in the short term. So thanks very much, everyone, for your questions today, and I know the team will be available for more conversations should you need them. So thanks very much, everyone. I appreciate your time on short notice. Mike?

That does conclude our conference for today. Thank you for participating. You may now disconnect.