Manufacturers need to confront high energy prices: analysts

The message from energy market analysts to manufacturers? Get used to higher prices.

At least, that was the view of four analysts at the National Energy Summit on October 10. While there was disagreement as to exactly how much energy, and in particular, gas, will cost, there was unanimity on the fact that prices will remain high.

“For domestic gas buyers this is as good as it gets,” said Saul Kavonic, head of Australian energy research at Credit-Suisse.

Where this heads in the future was the next realm of speculation. While panellists agreed that a price of $20 per gigajoule was unlikely, Nicholas Browne, director gas and LNG research Asia Pacific at Wood Mackenzie, predicted that globally, by 2023, 2024, gas prices will go higher again, after a period of stability or softening.

Controversially, Kavonic suggested that large gas buyers, such as manufacturers who use liquid natural gas as a feedstock may be using backdoor lobbying to get lower prices for themselves. Kavonic suggested that smaller manufacturers were much more at risk, with the threat of plant closures and job losses.

What could avert this outcome would not just be local exploration. Even with the lifting of moratoria on onshore gas drilling, such as those in Victoria, it would take 5 to 10 years for this gas to come to market, said Kavonic. Even less likely would be the discovery of offshore gas where it is needed most, Victoria.

The larger manufacturing base in this state, as well as the use of gas for household heating, led analysts to focus on this state as driving the demand for gas. In contrast, Queensland, where most LNG is produced for the east coast market has much less gas-intensive manufacturing than Victoria, and does not require it at the same level for household supply. In this instance, even if Queensland were to provide more gas for domestic use, rather than export, the size of the pipelines comes into question.

In these circumstances, analyst Mark Samter, senior research analyst at MST Marquee, suggested that it could be cost competitive for large manufacturers to construct their own gas import terminals, particularly when gas prices in the Northern hemisphere summer are low. The stated price, $6 per gigajoule, was met with scepticism by Mark Busuttil, energy and utilities analyst at J.P. Morgan Australia and New Zealand, but the premise was not as far-fetched as it sounded.

In these times, concluded Busuttil, manufacturers need to reconfigure their businesses for the new reality of high gas prices.