Chemistry Australia's gas price warning

CHEMISTRY Australia has said that manufacturing and jobs are still being affected by rising gas prices, despite government action.

Australia has an energy crisis on its East coast, which is seen to be largely of its own making. It has been exporting most of the liquefied natural gas (LNG) it produces, estimated at 62% last year by the BP Statistical Review of World Energy. This has left little in reserve for domestic energy production, where gas is increasingly needed following the closing of ageing coal plants and a push towards intermittent renewable sources. Subsequently, domestic gas prices have increased by 80% over the past year and a half.

The Australian government’s response was to introduce the Australian Domestic Gas Security Mechanism last week, which calls for LNG export control restrictions.

However, Chemistry Australia’s CEO, Samantha Read, has said that manufacturers in the Australian chemistry industry are not seeing an end to rising prices – and the crisis is far from over.

She said: “If anything, there appears to be continued upward pressure both on the cost of gas and its delivery. Members are still reporting increases of between 30–60% in negotiating new gas energy contracts.”

The Australian chemical industry uses 10% of Australia’s domestic gas for process energy, and as a non-substitutable feedstock for advanced manufacturing.

“Continued rises of this magnitude really are a question of survival. Demand destruction is not a solution to the gas crisis,” she continued.

The 2014 Deloitte Access Economics Report forecast losses of 14,500 jobs between 2014–2021 in net present value terms, due to the rising gas costs and constrained supply. Read believes that losses may in fact be higher than forecast.

Read said: “The modelling applied was based on gas in the US$8–10/GJ range, but anecdotally we are hearing of US$12–16, and even higher prices.

“These shifts of a dollar or two per gigajoule don’t illustrate the full impact to businesses, where the actual dollar effect is in the hundreds of thousands, and in some cases millions, added to input costs.”

The security mechanism is expected to provide some short-term supply certainty for gas buyers, giving them time to assess their position, but Read stated her concerns for the longer term.

She said: “If a business can make it through this period of crisis, will there be more gas supply, at more competitive prices, into a more transparent market?

“There has been a lack of understanding of how critical domestic gas is to job creation. Australia has an abundance of gas; our ambition should be greater than just meeting current day demand. Gas can create opportunities right through Australia’s value chains, and be a catalyst for investment just as it is in other countries endowed with similar gas reserves.”

Read believes that the most fundamental part of the picture is new gas supply. She stated that if all states were to adopt the Australian Competition and Consumer Commission’s recommendation for a case-by-case assessment on projects, this would open investment and jobs growth potential.

Read the 2014 Deloitte Access Economics Report here: https://tinyurl.com/yaxv5akj