Earlier this year, the Australian born CEO of Dow Chemicals, Andrew Liveris, warned that Australia risked damaging its manufacturing sector by exporting too much gas to Asia:
He has reiterated his push for a change in energy policy in the country, saying Dow Chemicals would open its cheque book for big-ticket value-added manufacturing projects in the country if it could source cheaper gas, which he said should not simply be shipped to export markets without allowance for domestic markets…
Mr Liveris is particularly vocal on energy policy… He is a strong supporter of domestic gas reservation, in which cheap domestic gas supplies help buttress a domestic manufacturing base. The US has seen manufacturing and jobs pick up thanks to the extraordinary gas boom, which has turned US the energy market on its head…
He says despite an abundant supply of gas, Australia has simply let oil and gas majors charge the domestic consumer a world oil price equivalent, which helps kill manufacturing.
“Last time I checked (oil and gas companies) were incredibly profitable. So $US100 oil price related to a domestic gas price — why should the domestic consumer pay the $US100 oil price, which is a geopolitical price driven by non-private sector interests? Seventy five per cent of the world’s oil reserves are controlled by nation states.”
Mr Liveris, who has championed an “advanced manufacturing strategy” to both Labor and the opposition, says cheaper gas in Australia would trigger significant investment from Dow Chemicals…
“Every (US) dollar of input of their gas is going to create $US8 of output. Every job in the oil and gas sector, I will create five jobs downstream.
“It’s one of the reasons why I think Australia is a great opportunity to do value add.”
Today, the Australian Industry Group (AIG) has responded to pressures emerging in the gas market, releasing a report [media release below] warning of a looming domestic “gas crisis” and seeking a “national interest test” for new LNG export facilities:
“A new Australian Industry Group report highlights the need for political parties to set out election policies to address the alarming rise in gas prices and the worsening squeeze on Eastern Australian gas supply. Urgent policy action is needed to ensure supply and lower prices for consumers and industry and to avoid job losses. The Ai Group report released today provides further evidence of the extent of the problem and a realistic package of solutions – including a national interest test for new LNG export facilities,” Ai Group Chief Executive Innes Willox said today…
Businesses are finding it extremely difficult to secure gas contracts. Of those businesses currently looking for gas contracts, nearly 10% could not get an offer at all. Another third could not get a serious offer. 26% could get an offer from only one supplier. Only a third of respondents (32%) received multiple contract offers. “In relation to pricing – of those businesses being offered contracts, businesses seeking relatively short term contracts to commence in 2013 were seeing offers of an average of $5.12 a gigajoule – a sizable uplift from historic prices of $3-4. For businesses seeking later or longer contracts, the average offer was $8.72 a gigajoule – which is more than double the historic price. These rises are coming faster than many thought…
“Gas is a valuable export, but it also plays an enormous role in the domestic economy. Gas fires the boilers in breweries and the furnaces in foundries. It is a critical direct input into production in the plastics and fertiliser industries and others. A 2012 report prepared for Ai Group and the Plastics and Chemicals Industries Association found that each petajoule of gas used in domestic industry enables $255 million in industrial output – and that we risk immense harm to employment and economic activity if adequate, affordable gas supply is not available…
“Addressing this gas crunch requires some substantial policy changes. Increasing gas production is essential. However this is not easy – and, on its own won’t be enough. Market reforms are needed too and they need to be accelerated. Ai Group is also seeking a national interest test (see Appendix) for new or significantly expanded Liquefied Natural Gas export capacity. Existing LNG projects have triggered much of the current supply squeeze and price rise. Closely following the United States and Canadian models, the national interest test would provide an opportunity to assess the national economic consequences of future major gas export projects. The public and other gas users would have the chance to understand and respond to proposals before they are locked in…
With a “gas cliff” expected in 2016 as major east coast LNG export terminals come on line, gas shortages and rising domestic prices are likely to become more pressing. One can only wonder whether for every dollar earned from exporting gas to Asia, Australia faces losing much more in lost value-added local production.
