Gas prices still rising for manufacturers

Samantha Read.

Samantha Read.

Chemistry Australia CEO Samantha Read has said that manufacturers in the Australian chemistry industry are not seeing an end to rising east coast gas prices due to a lack of understanding of how critical domestic gas is to job creation in the industry.

“While there has been some important Government action, the crisis is not over,” said Ms Read.

“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 per cent and 60 per cent in negotiating new gas energy contracts. Continued rises of this magnitude really are a question of survival. Demand destruction is not a solution to the gas crisis.”

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 per cent 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.

Ms Read continued, “Australia will pay a heavy price with job losses across the manufacturing sector. This is a double-whammy hitting everyday Australians who are already struggling at home with rising power and gas bills.

“The 2014 Deloitte Access Economics Report forecast losses of 14,500 jobs between 2014 and 2021 in net present value terms, due to rising gas costs and constrained supply.

“There are real industry concerns the job losses may be higher than forecast. The modelling applied was based on gas in the $8 to $10/GJ range, but anecdotally we are hearing of $12 to $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.

“We welcome the Federal Government’s announcement last week that the Australian Domestic Gas Safeguard Mechanism is now active. This provides some short-term supply certainty for gas buyers.

“Short-term measures help give businesses time to assess their position. But it’s the long-term vision that will ultimately decide whether a business continues operations in Australia.

“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?

“The most fundamental part of this picture is new gas supply. If all states were to adopt the ACCC’s recommendation for a case-by-case assessment on projects, this would open investment and jobs growth potential.

“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,” said Ms Read.

Click here to read the 2014 Deloitte Access Economics Report.

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