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PACIA: Gas producers and manufacturers could be ‘win-win’

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PACIA , the Plastics & Chemical Industries Association believes Australia’s gas market could be made more efficient with input from the competition watchdog as well as sensible regulation from the government. 

Speaking ahead of the Eastern Australia's Energy Markets Outlook 2013 Conference in Sydney, Director of Strategy and Innovation at PACIA, Peter Bury said that gas producers and manufacturers should be working together for the national good given that the interests of the two sectors were fundamentally aligned.

Mr Bury said policy had not caught up with the ‘tectonic changes’ in the gas market, leading to problems for gas dependent sectors such as plastics and chemicals industries. The focus has been squarely on the returns of LNG exports without consideration for the value delivered to the economy by local gas users, he added.

Mr Bury also spoke of the Australian economy’s extraordinary reliance on the plastics and chemicals industries. This sector accounts for 11.5 per cent of Australian manufacturing and supplies 109 of Australia’s 111 industries while directly employing 60,000 people, having a turnover of approximately $40 billion per annum and contributing $11.6 billion to Australia’s GDP.

He said the plastics and chemicals industries relied on a stable supply of natural gas at a reasonable price because they not only used gas for energy, but also as a ‘transformative’ agent, turning the natural resource into fertilisers, polyethylene plastic and packaging.

However, the absence of an effective policy means there is no marketing competition in the major gas basins, which affects price and supply. Without stable gas supplies at reasonable prices, Australia stands to lose major manufacturing infrastructure such as ammonia plants.

The Prime Minister’s Task Force on Manufacturing reported in 2012 that gas prices since the late 2000s had risen by 70 per cent and were predicted to go higher. Australian manufacturers found the price per petajoule of gas jumping from $3 to $8 in a few years, with a further leap to $12 being indicated by gas producers.

The Task Force also reported that many large manufacturers were finding it near-impossible to secure gas supply agreements beyond 2016, a situation that had become known as the ‘gas cliff’, despite the existence of 184 years’ worth of accessible natural gas supplies in Australia.

According to Mr Bury, domestic manufacturers are subject to export parity pricing, which means they are being asked to pay the contract price paid by North Asian importers for an Australian resource.

Mr Bury said it was a misconception that PACIA was seeking a ‘gas reservation’ policy, where governments would hold back gas reserves for domestic consumption. The association believes in a properly functioning regulated market, with all of the required components in place over reservation. Manufacturers want gas producers to be profitable and financially viable as a long term industry.

However, the east coast of Australia has no domestic gas policy, as the United States and Canada. There is also a lack of competition among large gas producers. The ACCC could look at collective marketing in the major gas basins, which would introduce competition and unhook the pricing structure from the long-term contract price for delivery into Korea and Japan.

Peter Bury said the gas producers should not see their LNG exports as coming at the expense of Australian manufacturers, just as manufacturers shouldn’t see themselves as viable only if gas producers didn’t export LNG. 

Observing that viable manufacturing and profitable gas production are complementary goals, Mr Bury concludes that a broader national interest should come out of this debate.

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