COMMENT: Why no cheap LNG for us?

The carbon tax has made its ugly entrance onto Australia's economic landscape and is rightly hogging all the headlines, however we can be quietly confident that when Tony Abbott takes over the reins in Canberra the insidious tax will become history.

However, this is not the case with our LNG industry. With electricity prices soaring, both sides of politics seem prepared to sell our gas off at any price with no regard for domestic consumption.

Australian manufacturers depend upon reliable supplies of energy and resources, priced competitively, in order to manufacture a range of vital commodities. 

Despite being in abundance, access to domestic sources of gas by local manufacturers is often made difficult by policy confusion, perverse incentives for international competitors and pricing uncertainty or inconsistency. It's a shortsighted energy policy that favours sending our abundant natural resources overseas at the lowest point in their value chain, while other nations reap the benefits of adding value to our resources. 

James Fazzino, MD and CEO of Incitec Pivot, says he sees no reason why we can't have a vibrant LNG industry on the back of a re-invigorated manufacturing industry, and also have some of the gas available for electricity generation. 

We have ended up in this curious situation where all the gas on the east coast of Australia is going to be exported.

He says government on both sides must recognise that the gas belongs to the Australian people, and ensure we end up with a balanced outcome with a certain amount set aside for local use; for consumers and manufacturers rather than just for export.

"Australia needs to look at its sustainable competitive advantages and exploit those advantages. 

"If you look at China, their advantage has been cheap labour, but expensive energy. We can have competitive energy and expensive labour."

Fazzino says the mistake we make is believing that the global gas market is not a free or fair market. He points out that Australia has allowed four global gas majors to take all the gas and export it.

However, in the US for example, President Obama has said he will keep the vast majority of its gas on-shore and is going to build manufacturing off the back of it. He has a vision of creating 600,000 new manufacturing jobs from the gas industry.

The US has this endowment and is leveraging it to create jobs.

One major difference between the US and here is that the US has around 3000 gas suppliers, while we have four multinationals who monopolise the industry and sell it offshore; they clearly don't have Australia's best interests at heart, only their shareholders.

At the moment, Incitec Pivot is considering building an ammonia plant somewhere in the world. Fazzino says the location hasn't been decided yet, it could be the US, but he guarantees it won't happen in Australia. The difference, he says, is the supply and the price of gas; "the value proposition".

He points out that if you take gas offshore, for example, you increase its value by three to four times. However if the company produces a complex emulsion for explosives, for example, its value is increased by 20 times.

And if you do that everyone wins; the government gets more tax and you build that balanced economy and all the benefits of local manufacturing. 

"Our rule of thumb is for every $1 we spend in the plant, there is another $4 we spend in the local community."

Pollies understand the problem, but they struggle with a solution. The problem is there is no silver bullet, yet.

This is about creating well paid, highly skilled jobs in the economy and being able to pay for that via our birthright in this country, cheap energy – so Australia can have its cake and eat it too.

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