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More gas available but at what price and terms - 02 October 2017

More gas available but at what price and terms?

 

The Australian chemistry industry welcomes the Federal Government’s progress with major LNG exporters to address the immediate gas shortfall.

Chemistry Australia CEO Samantha Read said, “We knew the domestic market was short, but the latest AEMO forecast is alarming. It shows that the shortfall could be as much as 15 per cent of total demand.

“Securing commitment from the gas industry to offer uncontracted gas to the domestic market first is a positive step. But the question remains, at what price?

“The longer-term challenge is for domestic manufacturers to access globally competitive gas prices. A bi-annual intervention provides only short-term relief. It will not fix the fundamental issues in the market, and it will not provide longer-term certainty for industrial gas users.

“At the end of the day, the long-term gas crisis is still here.

“We welcome the first Gas Inquiry Interim Report from the ACCC. It reveals that industrial users may be paying as much as double the international price.

“This is the experience of Chemistry Australia members, who have indicated that gas prices have tripled from around the $5 per gigajoule mark 5 years-ago. Shifts of this magnitude can add millions to operating costs since gas plays such an integral role in manufacturing operations. Members are reporting that these new offers are for relatively short-term contracts, with more onerous terms and conditions.

“Australian manufacturers should not be expected to pay double the price for gas that overseas competitors are paying on the international market. If we want to have a competitive manufacturing sector, we need to have a competitive energy market.

“In a well-functioning market, the ACCC estimates a delivered cost of gas at $7.87 and $8.20 per gigajoule, to Sydney and Melbourne respectively1. Achieving these targets needs to be a foundation of Australia’s energy policy.

“The Interim Report also confirms our long-held concerns that Australia’s chemistry industry and value chain manufacturers are worst hit by the crisis. This is because the industry uses gas as a non-substitutable ingredient for advanced manufacturing, as well as a reliable source for process energy.

“The 2014 Deloitte Access Economics Report forecast losses of 14,500 manufacturing jobs between 2014 and 2021 in net present value terms. This was based on modelling applied for gas in the $8 to $10 per gigajoule range. Conceivably we are looking at a much greater impact than estimated.

“Australians need to know that this crisis is hitting twice. Once on their gas and electricity bills, and again in job losses.

“We have been consistent in calling for more gas supply, from more suppliers into a well-functioning, transparent and competitive market.

“The test of any new measure being effective in turning the tide on the crisis, must be set against these criteria. The evidence of change will be when members and other industrial users are consistently offered meaningful improvements in gas contracts, including the number of offers, price and contract terms.

“There is still a long way to go. We can’t take our foot off the pedal and say the crisis is fixed until there is a properly functioning gas market. We need to keep focus on the medium and long-term view, or risk further demand destruction.

“The discussion around more supply is vital. We call on the States with moratoria to instead adopt the ACCC’s recommendation for a case-by-case assessment on projects. This would open investment and improve supply and competition,” said Ms Read.

 

1: ACCC Gas Inquiry 2017-2020, Interim Report, September 2017, p.68  

 

Gas is particularly essential to the business of chemistry. It’s important for process energy, and it is also a non-substitutable ingredient for advanced manufacturing. The Australian chemistry industry uses 10% of Australia’s domestic gas for its molecular properties to create a huge range of products essential to our everyday lives. These include fertilisers for our crops, cleaning products for health and hygiene in our homes and hospitals, and smart packaging to keep our food fresher for longer.

 

Media contacts:
Claire Selby – cselby@chemistryaustralia.org.au or 0448 028 876
Krista Imberger – kimberger@chemistryaustralia.org.au or 0439 318 290

 

Chemistry Australia is the pre-eminent national body representing the $40 billion Australian chemistry industry, one of the largest manufacturing sectors in the country. The industry employs more than 60,000 people and contributes more than $11.6 billion to GDP in industry value add. Members of Chemistry Australia are positioned across the entire value chain including manufacturers, importers and distributors, logistics and supply chain partners, raw material suppliers, fabricators, compounders, recyclers, research, academia and service providers to the industry. These businesses range from small family-owned companies to leading national and multinational enterprises.

 

 

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