The availability of reliable, low-cost electricity and gas drove post-war chemical manufacturing investment in Australia. The sector offered rewarding employment opportunities for Australians, delivered substantial economic growth, and improved our living standards and quality of life.

A return to reliable, lowest-cost electricity and gas is critical for chemical feedstock and energy, and all other downstream manufacturing energy needs. Without them, the industry will not be globally competitive or have the capacity to reinvest.

In short, if we do not address the high cost of electricity and gas, most industrial chemical manufacturing in Australia will become unviable.

This has already been demonstrated by the recent closures of strategically important chemical assets including:

• Qenos (Botany and Altona), Australia’s sole manufacturer of polyethylene and loss of steam crackers – critical for future circular economy capability in plastics;
• Indorama Ventures Oxides (Botany), Australia’s sole manufacturer of ethylene oxide and nonionic surfactants, which have a wide range of applications including in agriculture, mining, and home care hygiene, amongst many other sectors; and
• Incitec Pivot (Gibson Island), supplier of quality fertilisers used in agriculture and technical grade urea used in the manufacture of AdBlue for diesel engines as well as a major source of CO₂ for water treatment, medical and industrial use, and food and beverage production.

While the loss of local manufacturing capability has been, or will be, replaced by imports, Australia’s economic capacity, complexity and supply chain security is further eroded.  And notably, the loss of gas-feedstock based chemical manufacturing costs Australia's GDP approximately $145M per petajoule of gas³.

Gas Market Characteristics

Australia’s east-coast gas market is an omnishambles. Despite what should be a competitive advantage from the abundance of significant reserves, domestic gas users remain effectively locked out of affordable and reliable supply.

Three market interventions have failed, including supply agreements, a voluntary and a mandatory code of conduct requiring an initial price cap followed by reasonable pricing provisions in contracting arrangements. The previous price cap now effectively functions as a price floor for negotiations.

Gas retailers supplying most small and medium consumers have few checks and balances on their significant market power. These conditions contrast with the west coast gas market which has greater functionality, whilst managing the same domestic and export demand and supply dynamics.

Technology Neutrality

While our current focus on net zero by 2050 is essential, it is too short-term, particularly when viewed against the long- term, multiple-decade lifespan of capital-intensive chemical manufacturing investment. We need to start planning and building energy systems that will deliver reliable and clean energy well beyond 2050, which means that all energy types have a role to play in meeting Australia’s future energy needs.

Government should:

1. Implement policies that prioritise the supply of low-cost gas focused on the interests of domestic consumers including finishing the gas market reform process:
   1. In the absence of a properly functioning market or effective price controls, implement a plan to provide targeted assistance to industrial gas users (i.e. financial, regulatory, planning and/or other mechanisms) to bridge their net-zero transition to alternative sources of energy and feedstock;
   2. Curtail the concentration of producer and retailer market power by increasing competition and supply options to give consumers greater choice;
   3. Increase transparency for consumers to address the current contracting power imbalance, including publicising the exemptions and gas volumes issued under the East Coast Gas Code of Conduct, and including retailers;
   4. Introduce strong and enforceable “use it or lose it” obligations to ensure that gas reserves are brought to market;
   5. Require specific policy consideration of the direct and indirect impacts on domestic self-sufficiency, given increasing geo-political challenges and the need for improved supply chain security;
   6. Prioritise the supply of gas as feedstock to ensure Australia receives the maximum economic return from this vital public resource;
   7. Implement policies that reserve valuable natural gas liquids as feedstock, to encourage investment in high-value-added domestic chemical manufacturing opportunities; and
   8. Encourage investment in pipelines and other infrastructure to bring new gas supply to the market.
2. Electricity supply should be futher strengthened by:
   1. Ensuring the reliability and affordability of electricity supply by leveraging all available firming technologies, including gas generation;
   2. Improving the infrastructure in the poles and wires needed for de-centralised supply; and
   3. Addressing current investment uncertainty through greater Federal and State Government cooperation and coordination in the deployment of renewable energy infrastructure.
3. Adopt a technology-neutral approach to energy solutions necessary to tackle the substantial challenge of net zero.

^{3 Chemical industry economic contribution analysis, Acil Allen Consulting, 2017-18}