High gas prices are forcing some Australian manufacturers to mothball their plants before moving overseas, an official inquiry has revealed.
Manufacturers have also applied to extract coal seam gas from the Surat Basin as part of the Queensland government’s plan to provide more of its gas supply to the domestic market.
Published by the Australian Competition and Consumer Commission (ACCC), the interim report compares gas supply and demand based on export estimates gathered by producers of liquefied natural gas (LNG).
The report also uses projections from the Australian Energy Market Operator (AEMO), and warns there will be a “supply shortfall” of up to 55 petajoules (PJ) along the east coast next year.
“The effect of higher gas prices is felt right across the economy, from households to big business,” said ACCC Chairman Rod Sims.
“Gas and gas-powered generators are also an important part of electricity generation, so higher gas prices feed in to higher electricity prices, leading to a double hit for many.
“Over a third of the commercial and industrial (C&I) users the ACCC interviewed are considering either reducing production or closure due to high gas prices.
“For many of these users, gas is a feedstock to production or an essentially irreplaceable source of energy, and with the products they make often supplied on international markets higher gas costs cannot be passed on.”
According to the report, a number of users the ACCC interviewed have undertaken efficiency measures to reduce their use of gas and have been investigating alternative fuel sources, such as diesel and biofuels.
This is considered costly and will “require significant upfront investments and long lead times”, according to the Gas Inquiry 2017-20 Interim Report.
“For example, one manufacturer is looking to offset rising energy costs by permanently reconfiguring its existing internal generation assets to maximise the use of waste process gas,” the report said.
“[This] will allow it to avoid not only buying higher priced electricity from the grid but also avoid the need to use high priced natural gas for electricity generation.”
In the ACCC’s East Coast Gas Inquiry last year, it stated that Queensland LNG projects caused a significant disruption to the market and the supply-demand balance.
In 2018, the LNG projects will together produce more than 70 per cent of the east coast’s gas and account for two-thirds of the east coast’s gas demand.
“The expected shortfall could be reduced to a significant extent if the expected sales on international LNG spot markets were instead redirected to the domestic market,” Sims said.
“It is unclear why we are not seeing more steps being taken by the LNG projects to supply more gas into the domestic market. Although we accept some additional coordination costs would be likely and agreement of the joint venture parties of the LNG projects is required.”
Chemical manufacturer Coogee Chemicals dismantled its mothballed methanol plant from Melbourne and shipped it to the US to take advantage of cheaper gas, the report stated.
Elsewhere, explosives chemical and fertiliser manufacturer, Incitec Pivot, revealed it was one of multiple parties who applied to extract coal seam gas from the Surat Basin but was unsuccessful in its bid – missing out on 10 years’ worth of gas supply for its Gibson Island fertiliser plant, in Brisbane.
“We are seeing domestic prices on the east coast well in excess of the appropriate benchmark levels and many C&I users needing to re-contract for supply in 2018 and beyond are holding out in the hope of improved conditions. There is a lot of pent-up demand,” Sims added.