Last month the Plastics and Chemicals Industry Association released its industry roadmap, Adding Value, offering governments advice on how the sector could be helped to do its job better. Brent Balinski spoke to PACIA’s CEO Margaret Donnan about Australia’s “broken” gas market and more.
“Looking at our sector, we directly employ 60,000 people and the estimates have been that because our sector feeds into just about every other sector of manufacturing, and construction and agriculture, there’s a multiplier effect,” said Margaret Donnan, CEO of PACIA, on the day after the Roadmap’s release.
“Obviously there’s the high cost of doing business in Australia and at the moment we’re failing to attract capital investment, which is a barrier for our industry and so the industry’s really keen to be able to invest here,” she told Manufacturers’ Monthly.
According to the industry group’s figures, the sector makes up more than a tenth of all manufacturing in Australia, and supplies 109 of 111 industries. Its vast reach sees every job within plastics and chemicals creating a further five downstream.
Of huge concern to the industry – and to many other sub-sectors in manufacturing – is the high and rising cost of gas in Australia. The massive investment in gas projects, with about 70 per cent of east coast gas to be exported once Queensland’s plants are at full output (according to one Macquarie analyst) has helped drive up the price of the energy source, which is a major feedstock for plastics and chemicals makers.
According to The Australian Financial Review, seven of the world’s 12 major LNG export projects are in Australia and these are calculated to represent about $200 billion in investment.
“We’re a country that’s got huge natural gas resources, and yet our local manufacturing can’t access that gas,” said Donnan.
For PACIA’s members and for many others, securing long-term contracts is getting harder and harder, with a “gas cliff” predicted for 2016 as major east coast production comes on line.
“We’re not only looking at the inability for new developments but a number of our existing developments are under threat because they haven’t got confidence about their gas supply into the later part of this decade,” Donnan explained.
Analysis by the National Institute of Economic and Industry Research commissioned by PACIA and the Australian Group and released in October last year suggested that for each dollar gained by exporting LNG, $21 in value-add locally was lost.
“I guess we’ve seen one large investment that would’ve been good to see take place in Australia move to Pennsylvania, and that was a billion dollar investment and that was, according to the company, largely because they couldn’t secure a gas supply here,” said Donnan of the lost potential value to the country.
“That was a big loss to Australia in terms of employment and tax returns.”
Other high-profile critics of Australia’s uniquely unrestricted approach to gas exports have included Andrew Liveris, the global CEO of Dow Chemical (who claimed “the sky’s the limit” for Dow’s investment in Australia if it changed its energy policy) which he has described as “having no policy at all”; James Fazzino, CEO of Incitec Pivot, who cited cheap US gas (the country is in the middle of a much-remarked on shale gas boom) as behind Incitec’s decision to open a fertiliser plant in Lousiana, announced in April; and Manufacturing Australia’s chairwoman Sue Morphet. Morphet memorably used her keynote address at the Manufacturers’ Monthly Endeavour Awards in May to highlight the damage to Australian industry risked if no action is taken.
She later put the cost of inaction at 200,000 Australian jobs, and $28 billion a year in lost GDP, and has called for a domestic gas reservation of less than five per cent as a possible remedy.
PACIA does not support a gas reservation policy, rather an “immediate moratorium on new east coast LNG export plant approvals” while a solution is found, as well as using the tax system through measures including a rebate of the petroleum resource rent tax.
It describes the current market for gas as “broken”, “skewed towards LNG exports” and long overdue for reform.
“There was a report as long ago as 2002 by COAG called Towards a National and Efficient Energy Market and the recommendations out of that report haven’t been put into place and the problems we are seeing now were flagged back in 2002 and we think there are a lot of answers that are already out there,” said Donnan.
“The fortunate thing is that companies and the government are finally starting to appreciate that there really is a genuine problem, and that’s the first step in moving to a solution.”
Also an issue for PACIA is NICNAS (the National Industrial Chemicals Notification and Assessment Scheme), cited as the greatest regulatory area for concern by the lobby group. According to PACIA, there has been little attention to the stifling regulation their industry is faced with, despite this being identified as a “regulatory hotspot” by COAG in 2006.
“[The environment] is very complex, there’s lots of overlaps and duplications and conflicts at the federal level between the states and so they identified the problem, there was a Productivity Commission report that was handed down in 2008 and at that stage COAG agreed to drive implementation of the recommendations out of that Productivity Commission report,” remembered Donnan.
“It dealt with things like NICNAS and other areas like health and safety and environment, transport, security and unfortunately five years on very few of the recommendations have actually been put in place so it’s one of the failures out of COAG’s Seamless National Economy drive
“A lot of our companies that are global companies are introducing new technologies in Europe or the US but unfortunately because Australia doesn’t recognise the outcome of those overseas advanced economies we’re not getting those new chemicals into Australia because of the barrier offered by NICNAS. So we’re really keen that the structure of the legislation moves to adopt outcomes of some of those assessments in those advanced economies like the EU and the US so that Australia can innovate and do the things that we do really well."
To read PACIA's strategic industry roadmap, Adding Value, click here.