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Upsetting the usual order

One of the banes of my existence, working in energy markets, is the multitude of different units. Everything is measured differently and what’s more these conventions are different in different countries. The intention of this article is to both help those who also struggle with the difference between MBTU (millions of British thermal units) and GJ (gigajoules) and MWh (megawatt hours) as well as shine a light on some of the very unusual relative prices that are being seen at the moment.


Common Units

  • Oil is usually measured in barrels. A barrel of oil is 42 US gallons or approximately 159 litres of crude oil. In energy terms, a barrel of oil is approximately 6.1GJ of energy or 1.7MWh. This will vary somewhat between grades of oil as different types of oil have slightly different energy content.

  • Gas, in Australia, is measured in gigajoules (that is billions of Joules). This is a simple pure measurement of energy. There are 3.6GJ in a MWh. Offshore, gas is often measured in MBTU that is millions of British thermal units. A British thermal unit is the amount of energy required to raise one pound of water by one degree Fahrenheit (aren’t you glad you asked). The good news is that 1 MBTU = 1.055 GJ and so to a rough order of magnitude they are the same a GJ. To keep things confusing, in Europe gas prices are quoted in MWh. To convert these to GJ just divide by 3.6.

  • Coal is measured in tonnes. Different grades of coal have different energy (so called calorific value). The coal that is the benchmark for Newcastle coal futures is 6,000 Kcal per KG coal. This is pretty good black coal (and is a direct substitute to Russian coal). This means each tonne of this coal contains around 7 MWh of energy. On average, Australian coal fired power stations use lower quality coal than this – particularly the brown coal fired power stations in Victoria.

It is important to note that these energy densities capture the pure chemical energy. Power stations are not perfectly efficient – eg a typical gas fired plant has an efficiency of around 40-60%, coal fired plants are significantly lower (typically around 30%).


The table below compares current pricing for these three on a US$ per MWh basis at current periods.

The results above are actually very unusual. Coal is the most expensive fuel on an energy basis. LNG and oil are relatively similarly priced.


The chart below shows the long-term history of oil, gas and coal prices on a common energy equivalent basis (per MWh).

The normal hierarchy is that oil is the most valuable – reflecting its flexibility as a source of most transport fuels (petrol, diesel and aviation fuel) as well as an input into the petrochemicals supply chain (plastics, etc).


Gas is usually significantly cheaper than oil. Gas can supply both stationary energy and petrochemicals (for example, most fertiliser is made from gas) but because it isn’t used in a major way for transport fuels it is inherently lower value. Gas is also more difficult to store and transport than oil and oil products. Gas can be transported by pipelines – but these inherently create a one to one dependency between producer and consumer (as Europe is discovering to its cost with Russian gas). Alternatively, it can be liquified and transported by LNG tanker. However, this is hugely expensive and requires specialist infrastructure at both the export and receiving end.


Historically, Coal has also been cheaper than oil. It can’t be used for transport. It has roughly double the CO2 emissions of gas. Other than stationary energy, the main alternative use of coal is for steel making. The one good thing about coal is the ‘low tech’ nature of its supply chain. In Europe, where they are desperately short energy, there are a range of countries you can import coal from, you don’t need particularly specialist infrastructure to transport or import it, and you can store it in a massive pile on the ground (no special tanks or gas storage required).


It is this ease of transport and storage flexibility (as well as its ease in bringing it back online like mothballed plant in Europe) that is a key reason why coal prices have increased by 8-10x compared to 2020, where oil prices have only slightly more than doubled.


However, it does leave Australia’s coal fired power stations in somewhat of a quandary. While electricity prices are high – fuel costs are even higher. At US$435 per tonne for coal and 30% efficiency, fuel costs alone are something like A$300/MWh. Coal is no longer the cheap base load source of supply.


While average coal costs are going to be much lower than this, at the margin for black coal plant there has to be a strong incentive to reduce coal use. We are seeing this reflected in a sharp increase in gas fired electricity generation.


This is an example of the international energy crisis having direct impacts on the operation of Australia’s electricity and energy system.

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