27 March 2015
Uncertain future of gas price worries manufacturers
With analysts warning of a gas supply "cliff" or sudden shortfall in the next 12 to 18 months, manufacturers are wondering how they will cope with uncertain supply and steeply rising prices.
Queensland is cranking up a massive new gas export industry and suppliers are preparing to divert gas from the domestic market to the much more lucrative export market.
Retailers have been warning that the price of gas is likely to increase as that happens.
That has making it very hard for manufacturers to secure long-term gas contracts at a price that they can remain viable, according to Ben Eade from Manufacturing Australia, who says they typically make investments on five, ten or 15-year horizons.
"When you can't get a price out further than 12 or 18 months and the price is triple or quadruple the previously contracted prices...I've had members who have closed plants in Australia because of the gas issue, " he said.
"I've had members who have taken billion dollar investments offshore because of the costs. That's going to continue."
Australian Paper employs 950 people in Gippsland in regional Victoria.
Energy manager Brian Green said the company had spent $650 million in the region over the last 10 years, while 22,000 people in the region's forestry sector rely on the business.
He said the paper industry operated on tight margins and the problems they and others were having with gas supply and price could force manufacturers out of the country.
"Australia as a nation is looking to be a cheap and reliable energy exporter, which is effectively giving gas to our competitors, giving away our competitive advantage and putting manufacturing and jobs here in Australia at risk," he said.
Smaller businesses are struggling as well.
BOC, a member of the Linde Group, operates three small plants in Tasmania, Victoria and Queensland that convert gas into liquids.
They sell it to companies like Nestle who are off the gas pipeline network.
Spokesman Alex Dronoff said BOC was not able to secure long-term supplies.
"We went out to tender last year to get a five-year deal for gas for our Tasmanian plant and we couldn't get that," he said.
"The maximum we got was three years at an inflated [price] in my view, and that's why we didn't proceed."
So will the price of gas really triple?
Ben Eade, from Manufacturing Australia, thought it should be falling, given the dramatic fall in the oil price, which has historically been linked to the gas price.
Mr Dronoff, from BOC, said you needed a crystal ball to know what was going to happen to prices, but he said lack of competition, not just a shortage of supply, was forcing the prices up.
"We need much more transparency on the gas market to see what pricing and what volumes are being traded," he said.
The industry was dominated, he argued, by three big players - Santos, BHP and Exxon - but Australia could learn from the US where the economic resurgence was being driven by a big supply of shale gas and a large number of suppliers.
He would like to see more gas and more suppliers, given Australia has a large gas resource.
Geoscience Australia's latest surveys showed there were 40 gas basins across the country and fewer than half of them were currently in production.
Tapping those will be difficult, though, with moratoriums in place in NSW and Victoria and an inquiry underway in SA.
Cheryl Cartwright, from the Australian Pipelines and Gas Association, said if development did proceed, it would bring benefits for her members and the nation.
She lamented the conflict surrounding the coal seam gas industry.
"It's a tragedy that it's been based on emotion. Coal seam gas can be developed safely," she said.
"It's really important for the farming communities and the landholders who are involved in this to have some thoughtful discussions with the companies, and for those companies to make a lot of effort to talk to the landholders, so that there is fair and reasonable compensation, because there is use of the land, but also to reassure them that the regulations that are in place are being observed and the gas can be developed appropriately."
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