By Kieran Rooney and Hannah Kennelly
The closures of large gas-reliant manufacturers have reduced Victoria’s gas consumption and helped spare the state from shortages – but some are concerned it spells a potential industrial decline and economic trouble.
The Australian Energy Market Operator’s latest gas planning report for Victoria, published in March, shows that over the past four years, there has been an 11-petajoule decline in gas consumption from large commercial and industrial users, known as Tariff D customers, in the state.
The gas-reliant Qenos manufacturing plant in Altona in Melbourne’s west shut a year ago.Credit: Jessica Shapiro
This represented a 16 per cent drop in the category and came as the AEMO adjusted its most immediate warnings of winter shortfalls from 2025 to 2028.
Consumption in this area had declined because of a combination of large industrial closures and the decrease in the number of businesses in Victoria, the report said.
The AEMO found most of the decline appeared to come from the closure of companies in large heavy industries, such as plastic-maker Qenos, an ExxonMobil refinery and Australia’s largest glassmaker, Oceania Glass.
A separate AEMO report, examining the national picture for gas demand and supply, says it is most likely that gas demand will decline by another nine petajoules by 2027 because of industrial businesses closing.
Business closures affecting Victoria’s gas demand (source: AEMO)
- Qenos
- ExxonMobil Altona Refinery
- Oceania Glass
- Dairy closures (Saputo, Murray Goulburn, Fonterra and Lactalis)
- Smaller closures across food and paper manufacturing
Victorian Chamber of Commerce and Industry chief executive Paul Guerra said the manufacturing sector was under pressure, along with other large businesses.
“The cost to manufacture in Australia is higher than other parts of the world, and that then flows through to the cost of manufacturing in Victoria,” he said.
“Undoubtedly, the reliability and affordability of energy plays into that conversation as well.”
Guerra said energy was the future of Victoria’s economy, driving traditional industries, advanced manufacturing, and artificial intelligence and digital technologies, which relied on power-hungry data centres.
The Australian Competition and Consumer Commission in December said it had been warned by businesses that if high gas prices persisted, there could be further closures of Australian manufacturing – with broader implications for the economy.
This was a particular risk for manufacturers using high temperatures in their processes and who did not have any viable substitute for gas.
SPC operates several factories in Victoria, and sources most of its materials from local farmers and growers in the Goulburn Valley region and Gippsland.
Its global managing director, Robert Iervasi, said farmers were experiencing higher energy costs, which impacted prices for customers.
“So when we look at our input costs, the flow-on effect is that there’s an increased cost that our business needs to absorb or pass onto the end consumer,” he said.
Iervasi wanted to see more support from state and federal governments to help local manufacturing stay in Victoria’s regional areas and make it easier to access “reliable, affordable and alternative sources of energy”.
A Victorian government spokesperson said the state’s wholesale gas and electricity prices were lower than other states, benefiting energy-intensive businesses.
“In the last two years, employment in Victoria’s manufacturing industry grew over 10 per cent - from 256,000 to 283,000 – and there was a net increase in the number of businesses last financial year,” they said.
“We’re working to bring on more gas supply, we’ve approved the only new gas production application we’ve received in 10 years, we’re fast-tracking gas applications and sending a clear signal to market in the Economic Growth Statement that we want to see new supply options to bring down Victorians’ gas bills.”
These figures appear to reference Australian Bureau of Statistics data that show an increase in manufacturing jobs in Victoria since August 2022, peaking at 291,000 in August 2024.
But there has been a slight decline since then, and data released for the February quarter shows total manufacturing employment dropped to about 274,000 people.
The number of manufacturing businesses has also remained stable, but the ABS figure includes businesses of every size and does not separate categories based on energy requirements.
The future of gas usage in Victoria has been a contentious topic as the Allan government seeks to drive down household use. It has proposed new bans that would force homes to replace broken-down gas heaters and hot-water units with electric versions. Gas connections are banned for all new residential and commercial buildings.
Australian Pipelines and Gas Association chief executive Steve Davies said the deterioration in industrial gas demand was a sign of trouble, rather than transition.
“Policy proposals like banning gas appliances risk driving up costs, deterring vital investment, and accelerating the departure of the industries the state relies on for secure jobs without doing anything to improve supply for those who need it.”
Environment Victoria’s senior climate and energy adviser, Dr Kat Lucas-Healey, said network costs were a challenge for industrial businesses, which were left paying for infrastructure that other users were exiting.
She said authorities should find ways to bring down these costs and update regulations to reflect the current environment.
Biomethane and hydrogen could be alternative fuels for the sector but needed significant development work, Lucas-Healey said.
Opposition energy spokesman David Davis said the fall in gas demand was a worrying sign of industrial decline in Victoria that could be linked to the state government.
“They have hit businesses through massive tax hikes, regulatory imposts and insecure gas supplies,” he said.
A range of private sector announcements have been made in 2025 about new gas supply in Victoria to address concerns of shortfalls.
Esso and Woodside will invest $350 million to drill five new wells as part of their Turrum Phase 3 project. Amplitude and OG Energy are investing $400 million into Otway Basin projects with the goal of first gas being provided from 2028.
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