2022-23 Commodity Price Scenario Forecasts for AEMO
Developed commodity price scenario forecasts for the Australian Energy Market Operator using Oxford Economics Australia' proprietary Global Economic Model, considering global policy commitments to decarbonisation and current market developments.
Project background
The Australian Energy Market Operator (AEMO) engaged Oxford Economics Australia (OEA) to generate commodity price scenario forecasts to inform their Integrated System Plan, Electricity Statement of Opportunities and Gas Statement of Opportunities reports. AEMO required these economic forecasts to inform their modelling processes. The project involved developing commodity price projections for scenarios outlined in AEMO’s Inputs, Assumptions and Scenarios Report. The challenge lay in ensuring consistency between global commodity prices and country-level economic outcomes.
Approach and solution
In response to the AEMO need for commodity price scenario forecasts, OEA employed their proprietary Global Economic Model to develop forecasts which were consistent AEMO’s scenarios outlined in AEMO’s Inputs, Assumptions and Scenarios Report and took into account current market developments, global policy commitments to decarbonisation, and the potential impact of the Russia-Ukraine conflict.
The forecasts predicted a peak in commodity prices by the end of September 2022, followed by a decline as supply pressures eased. The long-term forecast was influenced by a policy-induced decline in demand as the world moves towards decarbonisation. Thermal coal was projected to be most heavily impacted by these efforts, followed by oil and then LNG.
In addition to the main ‘Step Change’ scenario, three alternative scenarios were considered: Progressive Change, Exploring Alternatives, and Hydrogen Export. Each represented different energy transition pathways, with varying assumptions about economic growth, policy coordination, and climate warming trajectories. The report concluded that the risks are weighted to the upside for commodity prices, with the Hydrogen Export scenario seeing the fastest fall back in commodity prices in the long-term.
Conclusion
AEMO has used these forecasts to engage with key stakeholders and inform their core reports used by decision-makers to plan Australia’s transition to net zero while maintaining energy security and limiting energy price growth.
