Jobs 'still at risk' despite gas plan
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Gas isn't much good unless it comes at an affordable price, chemical producers say. Bloomber
by Angela Macdonald-Smith
International chemical industry investors have warned the gas supply deal does not address the soaring prices that are putting tens of thousands of jobs at risk and are calling for a national energy policy that would help open up onshore gas in Victoria and NSW.
Senior executives at ChemChina, owner of basic plastics manufacturer Qenos, and US giant Dow Chemical say jobs and investment to keep plants in operation are being threatened by the squeeze in east coast gas. They want a policy that prioritises energy supply to domestic industry and onshore drilling restrictions lifted in the southern states.
Dow Chemical's Australasian head Louis Vega says that last week's deal struck by the Prime Minister with Queensland's LNG exporters to fill the 2018 gas shortfall, which is due to be finalised on Tuesday, still leaves a "huge gap" to be filled between asking prices for gas and what chemical makers can afford to pay.
Gas prices for industrial users have tripled from the recent $5 a gigajoule levels and can be double the international price, the chemical industry association Chemistry Australia says, citing the $10-$16 a gigajoule prices revealed last week by the competition regulator.
But many chemical makers need gas closer to $6 levels so a short-term gas supply deal won't help unless prices also fall and supply can be guaranteed for the longer term, the executives say.
The Turnbull government has backed a plan, reported in AFR Weekend, to reduce GST payments to states, such as Victoria and NSW, that block coal seam gas extraction in a move to help resolve the east coast gas crisis.
"Supply at all costs isn't fixing the very desperate urgent crisis that we're in," said Mr Vega, who noted the chemical maker's energy costs have doubled in each of the last two years. Dow is paying "nearly double" the benchmark prices cited as reasonable by the Australian Competition and Consumer Commission.
Mr Vega said the industry will "have to wait and see" on the impact of the Prime Minister's agreement and "whether it has the effect on prices that we all were hoping for".
The industry says removing restrictions on onshore gas – such as the moratoria and other constraints in Victoria, NSW and the Northern Territory – are vital to avoid the premium on gas prices that manufacturers in Victoria will be increasingly forced to pay as the state becomes more reliant on supplies from Queensland with the decline of the Bass Strait.
"Anything the states can do to help the country through its crisis right now would serve the citizens of Australia well," Mr Vega said.
Jonathan Clancy, responsible for Australian government relations at ChemChina, said developing onshore gas in Victoria and NSW could make the difference between a manufacturer being able to survive or not, given the at-least $2 a gigajoule extra cost for piping gas south from Queensland.
"It's fundamentally important to have the gas made available near the markets," Mr Clancy said.
"If there's gas that is at a price that is barely affordable today having gas made available on-site near infrastructure ... means that $2 makes all the difference between whether a company can use energy and remain profitable and have a cash flow-positive outlook or not."
Jobs on pyre
Trade-exposed industrial gas users are already suffering a "slow burn" of job losses as they chase ways to absorb higher energy costs that can't be passed through to customers, said Mr Clancy, who says ChemChina's Qenos plants in Altona and Botany are suffering not only gas price hikes but shortages of their key feedstock, ethane.
He said the Chinese state-owned company, which has had to provide Qenos with several hundred millions of dollars of financial support over the last several years, has found it "very, very difficult to comprehend" how it has been completely exposed because of a failure in domestic energy policy.
ChemChina invested $200 million several years ago to expand its Altona plant by 20-30 per cent, but instead had suffered a 20-30 per cent shortfall in ethane supply, which has cut output, he said.
"They certainly have a major question mark around why the government policy has failed in an environment where there's the suggestion that Australia is becoming the leading exporter of LNG that there's not been policy issues to look at a national interest position first and foremost," said Mr Clancy, who is also chairman of chemical industry association Chemistry Australia.
Industrial gas users are facing price demands in new contracts of $10-$16 a gigajoule or higher, in some cases three times more expensive than expiring contracts. The Australian Competition and Consumer Commission last week issued "benchmark prices" for industrial users based on LNG spot prices in Asia, signalling that Queensland users should only be paying about $5.87 a gigajoule, while Victorian manufacturers would have to pay at least $2 more to cover the cost of transporting Queensland gas south.
That leaves a large price gap and creates headaches for industrial users such as chemical makers, some of which need gas at $5 or $6 to keep their operations viable, said Chemistry Australia chief executive Samantha Read.
She pointed to a 2014 Deloitte study that forecast losses of 14,500 manufacturing jobs between 2014 and 2021 if gas prices reached $8-$10/GJ. But at current prices the impact on jobs and the economy is set to be "much greater", she said.
Mr Vega said Australia appeared to stand alone in not prioritising its domestic energy needs, in contrast to Canada, the US and Argentina, for example.
"Most countries around the world see energy as part of their national security and restrict pieces of it to ensure that their domestic economy and supply is served before they allow it to go offshore," he said.
"That's what Dow ... and others are advocating as part of a national energy strategy."
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