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Gas prices affecting Australian industry

In alliance with five leading industry associations, the Plastics and Chemicals Industries Association (PACIA) has today released the first comprehensive analysis into the impact on industry of the unprecedented changes in Australia’s gas market.

The report titled ‘Gas Market Transformations – Economic Consequences for the Manufacturing Sector’ is an independent study undertaken by Deloitte Access Economics. It reveals the implications of forecast Australian domestic gas price increases and supply tightness, and the severe side effects on the Australian economy.

“This analysis fills a major evidence gap. While we have known that prices have been rising, it has not been clear what this will mean for our industry and the broader manufacturing sector,” said PACIA CEO, Samantha Read.

The report brings to light major impacts on the Australian manufacturing sector from LNG export growth. It forecasts a loss of national manufacturing output of approximately $118 billion by 2021 in net present value terms.

Job losses for the same period are forecast to be 14,600. “The impact on the chemicals and plastics industry is significant, with forecast losses of $13.7 billion in manufacturing output and 4,000 jobs by 2021. This would represent a devastating loss of highly skilled jobs,” said Read.

PACIA - Gas and manufacturers

Gas use and dependence within the manufacturing industry.

“The projected hit to revenue would be a serious blow to businesses already operating in very challenging business conditions. Many in the Australian chemistry industry are significantly trade-exposed with limited ability to pass on cost increases. Revenue loss limits investment for future growth and employment. This is at a time when the Australian economy needs the strength and resilience that comes from diversification and improved competitiveness.

“There is no reason for Australia’s natural wealth to be spread so unevenly in the economy, given Australia’s abundant gas reserves. With smart reform and increased supply, Australia can support both strong energy exports and a thriving domestic manufacturing sector that adds value to its natural resources.

“Natural gas plays a unique role in our industry not only as a clean source of energy, but also as an essential and non-substitutable feedstock for chemicals and plastics manufacturing.

“Our industry contributes significant value-add in transforming gas through chemistry into ammonium nitrate used to fertilise our crops, and polyethylene to make water pipes, milk bottles and silage wrap. These products of chemistry are vital to our economy and to our quality of life.

“Everyday, Australians open their fridge and take out a bottle of fresh milk. This milk bottle cannot be produced without the natural gas that makes the polyethylene, which is a lightweight and easily recyclable material. Australian farmers, customers and families all depend on reliable supplies of this high quality polymer to safely deliver our milk that is so valuable to our everyday lives.

“A key contribution of this report is that it reveals how important natural gas is to the Australian economy. A supply and price shock to the extent forecast from the LNG export boom requires a broad national response. This is why we have taken this industry alliance approach; together we represent businesses that employ some 950,000 Australian workers and add value to 32 per cent of Australian domestic gas.

“It's not too late to avert some of the damaging consequences. We are calling on all stakeholders to work constructively together to address the challenges of gas market transformation, for the benefit of all Australians.

“We have a tremendous opportunity to take advantage of unprecedented global growth using our natural resources and ability to add value through innovation. Our vision is for Australia to benefit from meeting this demand through energy exports and high-value manufactured goods. We believe this vision is not only critical to Australia’s growth plan, but also achievable through collaboration, focused policies and investment,” said Read.

The alliance comprises: the Australian Industry Group, the Australian Aluminium Council, the Australian Food and Grocery Council, the Australian Steel Institute, the Energy Users Association of Australia and the Plastics and Chemicals Industries Association.

[This project was part funded by the Consumer Advocacy Panel as part of its grants process for consumer advocacy projects and research projects for the benefit of consumers of electricity and natural gas. The views expressed in this document do not necessarily reflect the views of the Consumer Advocacy Panel or the Australian Energy Market Commission.]

Download the full report.

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