Gas-fired recovery plan ‘a betrayal’
Australian manufacturers are ‘furious’ at the federal government’s new deal with large east coast producers over gas supply.
Australian manufacturers have been left “furious and betrayed” by the federal government’s new deal with large east coast producers over gas supply, accusing Prime Minister Scott Morrison of “falling at the first hurdle” in his plans for a gas-fired recovery from the pandemic.
Mr Morrison announced the new heads of agreement with gas producers on Thursday, saying the agreement “ensures Australian businesses and families have the gas supply they need at the cheapest possible price”.
But the new agreement does not include key elements Australia’s manufacturing sector says are needed to ensure they get the cheap gas needed to remain internationally competitive and boost the number of manufacturing jobs, including a mechanism to link gas prices offered to domestic users to international benchmark prices – preferably the US-based Henry Hub market.
Instead the new agreement only requires LNG exporters to offer uncontracted gas to the domestic market first on competitive market terms before it is exported, which manufacturers say represents little more than an extension of the previous agreement signed in 2018 when Malcolm Turnbull was prime minister, and will ensure they pay more for gas than international buyers.
It is understood the agreement also says that spot sales into the Australian market will “have regard” to spot prices producers could realise on international markets – which hit almost $US32.50 per million British thermal units last week amid rising LNG prices.
Long-term prices for domestic users should also factor in forward contract values on international markets, the agreement says.
The new agreement was announced amid a sharp rise in LNG prices on international markets, which manufacturers and analysts say will flow into domestic prices this year.
Even the architect of the government’s so-called gas-fired recovery plan to drive new manufacturing jobs, former Dow Chemicals boss Andrew Liveris, said on Thursday he was disappointed with the new gas deal, and it would not encourage manufacturers to invest in Australia.
“If this policy is all we get, then we have gone nowhere to create domestic jobs,” he said.
He said he expected that the new domestic gas policy that was announced late last year and which was being worked on by Energy Minister Angus Taylor and Resources Minister Keith Pitt, which should be released in the next few months, would incorporate a domestic gas reservation policy.
Senior industry sources say they were not aware of the final outcome of the deal until it was announced on Thursday, even though it was signed by gas producers on December 30 and by the Prime Minister on January 5, and many of the CEOs involved in the talks have been left feeling “furious and betrayed” by new deal.
Negotiations are ongoing over a code of conduct for gas suppliers that may still yield a new pricing structure for gas supplied to the domestic market, and the government is still working on a domestic gas reservation policy that could include long term contract pricing mechanisms and other policies to improve volumes sent into the local market.
But one senior industry source, noting that the Prime Minister’s announcement was made from Queensland’s gas production heartland, said the government’s much-touted gas-fired recovery appeared to be falling at the first hurdle.
“Australian manufacturers are furious,” he said.
“This gives a green light to producers to carry on ripping off Australian industry by charging them more than overseas customers for the same gas. The government is at risk of falling at the first hurdle of its gas-fired recovery.”
But gas suppliers backed the new agreement on Thursday, with Santos chief executive Ken Gallagher saying Australian manufacturers should improve their own “inefficient cost structures” rather than blame gas suppliers for high costs.
“The fact is Australia already enjoys lower gas prices than Asia. Santos released its 2020 fourth quarter results today, showing once again that average realised prices for LNG are higher than for domestic gas. It is completely untrue that domestic customers pay more than customers in Asia for Australian gas,” he said.
“The way to lock in an energy advantage is to establish industry close to gas supply sources or develop gas close to industry. But Queensland gas producers should not be required to subsidise companies that refuse to address their own inefficient cost structures – or worse – simply want higher margins.”
Incitec boss Jeanne Johns said the company remained committed to working to achieve the Prime Minister’s stated goal of a manufacturing recovery from the pandemic, and affordable and internationally competitive gas prices.
“There is no reason why Australia as a gas rich nation can’t have international pricing like other gas rich nations today. The linchpin to the government’s gas-fired recovery is to create an international gas price benchmark and mechanism, like the USA’s Henry Hub, at Wallumbilla,” she said.
“We will continue to work with the government and all industry stakeholders to achieve the PM’s vision to fix the dysfunctional market structure and secure the future of manufacturing and its jobs across regional and urban Australia.
Australian Industry Group chief executive Innes Willox said the new agreement was an improvement on the 2018 deal, but would not help drive an industrial recovery.
“While the heads of agreement provides a helpful buffer against gas shortages, there had been high hopes that the agreement and the wider gas policy package announced by the Government would lead to lower everyday gas prices and support recovery and reinvestment across the economy,” he said.
“There is now considerable disappointment that the agreement at best will make only a relatively negligible contribution to that aspiration.”
Additional reporting: Lachlan Moffet Gray
