High east coast gas prices will lead to more closures: ACCC

More manufacturers will be forced to close if gas prices don’t come down, warns ACCC.

ACCC Chairman Rod Sims. John Feder/The Australian.

Manufacturers in Australia’s eastern states will be forced to close if gas prices stay above current levels of $10 a gigajoule, the competition regulator has warned.

Some commercial and industrial users will pay more than $11 a gigajoule for gas this year, more than three times historical levels, the Australian Competition & Consumer Competition’s interim report shows.

“Commercial and industrial gas users have been telling us for some time that at those gas prices, their operations are not sustainable in the medium to longer term,” Mr Sims told the APPEA oil and gas conference in Brisbane today. “Businesses that rely heavily on gas are increasingly likely to relocate from the east coast or wind up their operations.”

Chemical giant Dow said this week it will close its Altona factory in Melbourne, adding to a growing list of manufacturers buckling under the weight of higher energy prices.

The century-old Queensland based brickmaker Claypave sunk into administration in March while 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.

“Many other manufacturers are close to making critical decisions on their future operations. If wholesale gas prices do not soften, it is just a matter of time before they follow Dow, RemaPak and Claypave,” Mr Sims said.

The national power grid operator also stressed the need for the industry to boost investment to help head off domestic gas shortfalls due to hit the southern states after 2023.

“There is a requirement for further investment in existing reserves or alternative gas supply infrastructure developments, such as additional north to south pipeline capacity or gas import terminals, to reduce the risk of shortfalls,” Australian Energy Market Operator chief executive Audrey Zibelman said.

The ACCC also raised concern that a fall in international LNG netback prices over the last six months has not appeared to translate to a fall in domestic tariffs.

“We expect that those same suppliers have revised their prices down this year to reflect these latest expectations as quickly as they escalated them last year,” Mr Sims said. “So far we are not seeing this.”

The plight of heavy industry and manufacturing has been under the spotlight at the annual oil and gas conference as the nation’s top energy producers weigh the quickest way to bring more supplies into the market.

Heavy industry including fertiliser and explosives maker 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.