Gas prices are skyrocketing, and gas intensive manufacturers are bearing the brunt. But they can take back some control of their energy costs through smart investments in energy productivity.
We have moved into a new phase of Australia’s energy debate. Anger about skyrocketing energy costs and falling reliability is at boiling point. The pain being felt by Australia’s large energy users – caught in a pincer movement between rising gas and electricity prices – is intense.
The arguments in Canberra over long term reform of the energy system rage on. In the meantime, many manufacturers are wondering whether they can keep operating in the face of massive gas price hikes.
Until recently, Eastern Australia enjoyed relatively low gas prices. We had large gas resources that exceeded consumer demand for gas, and this kept prices low.
But gas prices have risen dramatically after new liquefied natural gas terminals were built to export gas overseas. The complexity and lack of transparency of the gas market means that it can be hard to determine prices. However, it appears that gas prices have at least doubled, from under $4 per Gigajoule (GJ) to well over $8 per GJ. And the Energy Efficiency Council is aware of energy users being offered short and medium-term contracts at much higher prices, often on a take it or leave it basis.
That’s a massive problem for manufacturers, who are bearing the brunt of policy failures on the supply side of the market. And for some manufacturers that rely on gas, it’s an existential threat to their business.
Taking control of gas costs with energy productivity
The gas crisis debate has been very focused on the supply side problems that are driving price increases. That makes sense – the supply side is a mess and absolutely needs to be sorted out.
However, there are opportunities for businesses to take back some control in the short term by taking another look at how effectively they are using their gas.
Many businesses have opportunities to use gas more efficiently. In Australia, we know there is a big gap between average performance and the best performers in terms of energy productivity.
Research commissioned for the Federal Department of Industry found that when they ranked the activity of big energy users cutting their energy waste, the top 20% of companies pursued energy efficiency projects that resulted in four times more energy savings than average.
Those 20% of companies that were proactive about pursuing energy efficiency improvements, and have been less exposed to price hikes in gas and electricity markets.
Average energy performance equals high risk
Now ten years ago, you could safely argue that sitting around the average in terms of energy performance was fine.
Energy was pretty cheap, and prices relatively stable. Straightforward efficiency projects with a quick payback got done, but more complex projects stayed on the backburner.
For managers and executives with limited time, it made some sense to manage energy spend primarily through procurement; locking in the cheapest possible unit cost for energy was the name of the game.
Today it’s harder to argue that the gap between average performance and leading performance doesn’t matter.
Companies are operating in a very different environment – a world of massive price hikes, reliability issues, and inherent volatility in gas and electricity markets.
For businesses that rely on gas as a significant production input, the risk associated with energy has gone through the roof.
Which is why many companies are bumping energy productivity up to the top of the list of strategic issues they need to deal with.
Driving ambitious energy productivity
Sorting out the problems on the supply side of the market will take time. So, at the Energy Efficiency Council we are working to make sure that opportunities to use gas more efficiently and productively are on the agenda for business and government.
This week in Melbourne we are bringing together decision makers and experts including the Federal Minister for Energy, Josh Frydenberg and Ai Group CEO, Innes Willox for a special lunchtime Forum to examine the causes of rising gas prices, and options for large gas users to reduce their exposure to the gas market through smart investments in metering, maintenance and high efficiency equipment.
It’s a discussion we have to have. Many energy users feel they have been failed by governments, market institutions and energy companies over the last ten years, and they have been left to pick up the tab.
Energy efficiency and productivity is a way of taking back some control. And let’s be frank – getting more out of every unit of energy behind the meter is a way of reducing exposure to the craziness playing out on the other side.
Luke Menzel is the CEO of the Energy Efficiency Council, Australia’s peak body for energy efficiency experts.
The National Energy Efficiency Forum: Managing gas price shocks takes place on Wednesday 28 June 2017 in Melbourne.