Gas prices still putting the heat on manufacturers

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Chemistry Australia CEO Samantha Read has said that manufacturers in the Australian chemistry industry are not seeing an end to rising east coast gas prices.

“While there has been some important Government action, the crisis is not over,” said Read.

“If anything, there appears to be continued upward pressure both on the cost of gas and its delivery. Members are still reporting increases of between 30 per cent and 60 per cent in negotiating new gas energy contracts.

“Australia will pay a heavy price with job losses across the manufacturing sector. This is a double-whammy hitting everyday Australians who are already struggling at home with rising power and gas bills.”

Gas is particularly essential to the business of chemistry. The Australian chemistry industry uses 10 per cent of Australia’s domestic gas for its molecular properties to create a huge range of products including fertilisers for  crops, smart packaging to keep our food fresher for longer, and more.

The 2014 Deloitte Access Economics Report forecast losses of 14,500 jobs between 2014 and 2021 in net present value terms, due to rising gas costs and constrained supply.

According to Read however, there are real industry concerns that the job losses may be even higher than forecast. This is because the modelling applied was based on gas in the $8 to $10 per gigajoule range, however some manufacturers are being faced with $12 to $16 per gigajoule, or even higher.

“These shifts of a dollar or two per gigajoule don’t illustrate the full impact to businesses, where the actual dollar effect is in the hundreds of thousands, and in some cases millions, added to input costs,” said Read.

“We welcome the Federal Government’s announcement last week that the Australian Domestic Gas Safeguard Mechanism is now active. This provides some short-term supply certainty for gas buyers.

“Short-term measures help give businesses time to assess their position. But it’s the long-term vision that will ultimately decide whether a business continues operations in Australia.

“If a business can make it through this period of crisis, will there be more gas supply, at more competitive prices, into a more transparent market.

The most fundamental part of the mechanism is new gas supply, according to Read. She believes that if all states were to adopt the ACCC’s recommendation for a case-by-case assessment on projects, this would open investment and jobs growth potential.

“There has been a lack of understanding of how critical domestic gas is to job creation,” said Read.

“Australia has an abundance of gas; our ambition should be greater than just meeting current day demand. Gas can create opportunities right through Australia’s value chains, and be a catalyst for investment just as it is in other countries endowed with similar gas reserves.”

Gas is particularly important to the business of chemistry. It is important for process energy, and it is also a non-substitutable ingredient for advanced manufacturing, according to Chemistry Australia.

The Australian chemistry industry uses 10 per cent of Australia’s domestic gas for its molecular properties to create a huge range of products essential to peoples’ everyday lives. These include fertilisers for crops, cleaning products for health and hygiene in homes and hospitals, and smart packaging to keep food fresher for longer.