The high price of gas exports  

Posted by Big Gav in , , ,

The impact of LNG exports, particularly of coal seam gas, on Australian industry continues to be the topic of debate, with one recent report warning that there it will further destroy the local manufacturing industry (already reeling from Dutch disease) - High gas prices threaten thousands of jobs, billions of dollars: industry.

A new report warns the riches promised by exporting Australian gas may have a devastating impact on local industries, particularly manufacturing. A coalition of half-a-dozen industry groups commissioned the report by Deloitte Access Economics.

The report says domestic gas prices are rapidly rising as the market links in with international prices. It warns that, if the rise goes unchecked, the manufacturing sector alone will contract by as much as $118 billion by 2021, with nearly 15,000 jobs lost. The report also finds that mining might contract by $34 billion and agriculture by $4.5 billion.

The ABC has a background piece - The price of gas.

Australians pay close to the highest electricity prices in the world, and we’re about to start paying some of the world’s highest gas prices, too. That’s because we’re about to start exporting gas for the first time from the east coast, and there’s no limit to the amount of gas that can be sent overseas.

That means Australians have to compete with energy-hungry customers in Asia, who are prepared to pay top dollar for our gas. The message from the government is that if we want to use gas, we’re going to have to get used to paying top dollar, too.

‘Gas is now being sold in Australia at an international price. That’s the reality of a world market,’ says the federal minister for industry, Ian Macfarlane. ‘To protect one section of the Australian market to the detriment of those people who want to take the risk, and invest the billions of dollars it takes to develop a CSG (coal seam gas) project simply doesn’t make economic sense, and we’ll just see that investment go somewhere else.’

Australia is about to become the first country in the world to export coal seam gas—without the CSG boom in Queensland, exports on the east coast simply wouldn’t be viable. Equally, coal seam gas mining wouldn’t be feasible in Australia at the old price of $3-4 per gigajoule, because it costs a lot more to extract than conventional gas.

Customers in Asia are prepared to pay up to $18 per gigajoule for our gas. Since there’s no policy to disconnect Australia from these prices, our gas prices are now rising to meet what’s called the ‘netback’ price—the Asian price, minus the cost of processing and shipping.

For big industrial users, this is particularly bad news. ‘We're seeing prices leap from historical averages of sort of $3 to $4 a gigajoule to $9 to $12 a gigajoule or more,’ says Ben Eade, executive director of Manufacturing Australia. He says the impact of rising gas prices will ‘dwarf the impact of the carbon tax’.

A new report commissioned by industry groups and prepared by Deloitte Access Economics says skyrocketing gas prices will damage the Australian manufacturing sector to the tune of $118 billion over the next seven years, and lead to a loss of more than 14,000 jobs. ‘The fact is, high energy costs are killing industry in Australia,’ says Eade, ‘and high gas costs in particular.’

Even the companies who are willing to pay top dollar for gas are having a hard time finding it. That’s because around 80 per cent of Australia’s gas is now controlled by companies who are selling that gas to Asia. In fact, the big gas exporters have overcommitted to customers; according to Citigroup all three LNG hubs are having to buy gas from third parties in order to meet demand.

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