Wednesday, October 17, 2012

The Importance of Affordable Gas Prices for Manufacturing

Eastern Australia’s focus on producing natural gas for export instead of domestic use threatens to undermine the viability of Australian manufacturers due to rising costs. The surge in gas exports is set to drive east coast gas prices from $3-$4 per gigajoule to $9 by the end of the decade.

This represents yet another cost impost on our manufacturing sector already struggling under a high Australian dollar. DomGas Alliance, which represents natural gas users, infrastructure investors and producers in Western Australia, believe the key to manufacturing success in Australia is access to affordable and reliable gas supplies, and yet Australian industry cannot secure long term contracts at affordable prices, notwithstanding Australia’s massive natural gas reserves.

The fact is that most of Australia’s gas resources are now controlled by the world’s biggest oil and gas companies, who have a commercial preference to sign multi-billion dollar contracts with large overseas customers, and who will not sell voluntarily to smaller Australian companies.

Australia is the only country where international oil companies can access and export gas without prioritising domestic supply, and is the only major gas producing country suffering serious gas shortages and sharply rising prices as production increases.  The United States, for example, will not allow LNG exports unless gas producers ensure supply and affordable prices for US industry. This has delivered US gas prices of around $2 per gigajoule. There is no policy outside Western Australia to ensure our energy resources are prioritised to supply Australian industry and households.

The Dom Gas Alliance says a 15% domestic gas reservation policy would be in Australia’s national interest. I believe the Government should give greater consideration to this proposal or to alternative ways of providing affordable gas supplies for Australian manufacturers.

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