Competition regulator fires east coast energy shutdown warning
Heavy industry will shut down on the nation’s east coast if high gas prices persist, the competition regulator has warned.
Australian manufacturers and heavy industry will shut down operations on the nation’s east coast if high gas prices persist with the problem exacerbated by suppliers failing to properly engage with customers, the competition regulator has warned.
Commercial and industrial users are struggling to cope with a big spike in the cost of energy which remains three times the price of traditional tariffs amid a supply squeeze in markets stretching from Queensland through NSW, Victoria and South Australia.
The Australian Competition & Consumer Commission reinforced concerns raised by commercial giant Dow Chemical that high power and gas bills will force big business to shut operations.
“Commercial and industrial gas users have been telling us for some time that at current wholesale gas prices, their operations are not sustainable in the medium to longer term. They are increasingly likely to relocate from the east coast or wind-up their operations,” ACCC chairman Rod Sims told an energy conference in Sydney today. “The recent rapid escalation in the cost of energy has made the east coast of Australia an increasingly unattractive proposition for investment.”
The ACCC also warned Australia’s major gas suppliers to not prioritise profit over engaging with their customers.
“If gas suppliers do not want to drive domestic gas buyers out of the market, then do not offer prices that see businesses close,” Mr Sims said. “Suppliers should also be mindful how they engage with prospective customers. Refusing to respond to requests for offers, and instead insisting that users participate in the supplier’s own expression of interest processes, does not create an impression that a gas supplier is actively participating in the domestic market.”
East coast short-term gas prices surged over $10 a gigajoule in the last three months of 2018, a 43 per cent jump on the same quarter the prior year, EnergyQuest said yesterday, with conventional gas supply from sources like the Bass Strait falling by 17 per cent over the year.
Heavy industry including chemicals producer Dow, fertiliser and explosives marker Incitec Pivot and the nation’s largest petrochemicals producer Qenos have all raised concerns in recent months over their ability to remain competitive with energy costs on the east coast remaining stubbornly high.
Polystyrene coffee cup maker Remapak appointed administrators in January after experiencing a 400 per cent increase in its gas costs over the last three years while Coogee Chemicals closed down a plant in 2016.
“Many other manufacturers are close to making critical decisions on their future operations. If wholesale gas prices do not soften from their current levels, it is just a matter of time before they follow RemaPak and Coogee. Once large manufacturers relocate or shut down their plants, they will not come back,” Mr Sims warned.
While many big gas users are trying to get through the current period of high prices, some may baulk when required to tip in more investment to keep their operations running.
“The main reason we are yet to see businesses on the east coast relocate or close is likely because they are continuing to operate while their capital costs are sunk. For many of these businesses, the crunch time will come when material capital reinvestment in maintenance, replacement or upgrade of their plants is required,” Mr Sims said. “These key investment decisions are coming and for some they are just around the corner. At least some of these businesses will not make these investments in the absence of sufficient certainty that they will be able to acquire gas at sustainable prices in the medium to longer term.”
