29 July 2013

Gas For Jobs: A Roadmap for Domestic Gas Security Manufacturing Australia

Manufacturing Australia has today launched a national campaign - - leading into the Federal Election, to stop unrestricted exports of gas from Australia’s East Coast, which threaten almost 200,000 Australian manufacturing jobs.

The Problem:

Beginning in 2015, gas reserves on Australia’s East Coast will be opened up to export, with no safeguards in place to ensure reliable and affordable gas remains available for domestic industry.

A handful of multinational oil and gas consortia will control the vast majority of gas reserves on Australia’s East Coast and have unrestricted rights to export it.

The impact of unrestricted gas exports on Australia’s manufacturing industry is devastating. Manufacturers rely heavily on gas, either directly as an essential ingredient in making plastics and chemicals such as fertiliser, or indirectly as a reliable, effective and affordable source of energy.

With no limitations on exports of Australian gas, local manufacturers cannot secure long-term contracts for gas, and what gas is available is skyrocketing in price by up to 200%. Australians will now pay the world’s highest gas prices despite having one of the world’s largest supplies.

Put simply, with limited access to gas, no transparency of pricing and stifled competition, Australia’s domestic gas market is broken.  

Left unchecked this crisis will permanently push many manufacturing businesses over the edge, costing Australia 200,000 manufacturing-reliant jobs and $28 billion in economic value.

Manufacturing Australia does not oppose the development of an export industry for Australian gas. We agree that this will open up exciting and valuable new industry for our nation.

But a gas export industry should not come at the cost of thousands of jobs and increased energy costs for Australian households. That might be good business for multinational oil and gas companies, but it’s not good for Australia.

Australia is the only gas-rich country in the world that does not make sure there is enough gas available for local industry and households. Alarmingly, unlike their counterparts in most of the world, Australia’s Federal Government and State Governments on the East Coast don’t think there is a role for Government in safeguarding domestic gas supply.

Australia’s energy advantage is ours to lose and fixing this issue quickly is now a national emergency.

The Solution:

Governments must ensure there is sufficient gas for domestic use. They must ensure there is enough supply of gas to guarantee domestic demand (residential and industrial) will be met.

Manufacturing Australia is looking to Federal and State Governments for acknowledgement that this is a once in a generation structural shift in energy markets, which poses challenges that market forces alone cannot fix.

We believe urgent intervention is required so that Australian industry is not damaged during a transition period while LNG exports develops.

Manufacturing Australia has developed a mix of short, medium and long-term policy initiatives. Importantly, no one measure will solve this crisis on its own, but rather different policies are required to work in tandem to increase overall supply, restore market effectiveness, and address a transitional price shock.

We will be putting the full package of options to the Federal Government and Opposition during the forthcoming election campaign.

If this approach fails, future governments will face the prospect of imposing emergency restrictions on exports in the national interest.

The following is a summary of the policy initiatives proposed by Manufacturing Australia.


Policy Initiative 1: Domestic Production and Tenement Allocation on New Projects

Even if overall gas supply increases over time, there is no assurance that supply conditions in the domestic market will improve. Therefore, in order to support Australia’s energy security, a percentage of production from all new gas projects and expansions should be allocated to domestic use, along with the establishment of dedicated domestic gas tenements.

The release of tenements for domestic production would enable independent gas companies to work with industry to develop resources and break the stranglehold that the global gas consortia have over East Coast gas reserves.

Domestic production and tenement allocation would be implemented by State Governments, replicating and refining the policy that already exists in Western Australia, which has not deterred investment in gas development and would ensure national uniformity.

Prices and contracts for domestic allocated gas would be determined by the domestic market, with producers having flexibility in meeting export commitments, for example by supplying gas from outside the LNG project through ‘gas swaps’.

If new suppliers emerge to support an effective domestic market, domestic allocation conditions could be removed or the percentage adjusted.


Policy Initiative 2: Domestic Gas Taskforce

Immediately establish a domestic gas taskforce comprising Governments, major users/manufacturers and gas supply companies to resolve this issue in the national interest, in a finite timeframe.

Then, subject to the outcomes of the Taskforce, an independent expert National Gas Authority (similar to the USA’s Energy Information Administration) could be established to improve market knowledge and transparency in Australia’s gas markets and to advise on market policy and issues.

The agency may also provide expert knowledge on environmental and scientific issues and best practice relating to gas development, such as hydraulic fracturing and water management.

The National Gas Authority’s activities may include:

  • Collecting gas market data;
  • Undertaking regular market reviews including extensive consultation with gas users, producers, exporters, experts and community groups;
  • Providing forecasts and planning information;
  • Providing information and advice to support sound gas policy development;
  • Monitoring market conditions and making recommendations for regulatory adjustment; and,
  • Working with State governments and agencies to increase uniformity in Australia’s gas markets.


Policy Initiative 3: Gas Market Frameworks and Industry Cooperation

Australia’s national gas policy has effectively been to not have a policy, believing the market will simply sort itself out. This has been exacerbated by disparate State approaches to gas development, and a lack of market transparency. Two responses are required.

Firstly, the key parties , working through the National Gas Authority, should work together towards the goal of effective gas markets and an orderly development of Australia’s gas industry, by seeking to:

  • Improve resource management (including export limits);
  • Encourage a national framework for tenure management;
  • Provide market transparency and robust forecast and planning information;
  • Remove unnecessary red and green tape (while maintaining appropriate approvals and safeguards);
  • Implement policies and frameworks to balance legitimate interests, including national interests; and,
  • Protect and manage Australia’s economy from transitional shocks.

Secondly, once immediate policy initiatives are delivered, manufacturers and other large gas users should work with Governments (State and Federal) and gas producers towards the further development of onshore gas reserves and gas infrastructure to increase overall supply and market conditions.