Reform needed to minimise LNG export impact on manufacturers: report

Rising gas prices under current policy settings will lead to a loss of manufacturing output of approximately $118 billion in net present value terms by 2021, according to a new report by Deloitte Access Economics.

The Gas Market Transformations – Economic Consequences for the Manufacturing Sector report, commissioned by six manufacturing industry associations employing 950,000 workers, states that while both the energy export and manufacturing industries are critical to Australia’s economy, under current policy settings the boom in LNG exports is set to have serious consequences for Australian manufacturing.

“While exporting Australia’s previously untapped unconventional CSG reserves is expected to provide a boost to Australia’s GDP, realising these benefits will also entail painful consequences,”? the report says.

With up to 14,600 manufacturing workers anticipated to lose their jobs, Australian Pipeline Industry Association (APIA) Chief Executive Cheryl Cartwright said expanding Australia’s gas supply and addressing gas market imbalance in the wholesale gas sector will help address the forecast increase in gas prices set to impact the manufacturing industry.

“The same LNG companies that own 80 per cent of production also own 75 per cent of gas demand in Australia,”? Ms Cartwright said.

“This highlights the market dominance of these companies and the challenge that local industries face in accessing gas supplies.

“This market imbalance needs to be addressed. Gas production should be included in the national gas law, or at least have an effective access regime similar to that of the rest of the supply chain.”?

Meanwhile, Australian Industry Group Chief Executive Innes Willox said it was a paradox that bringing Australia’s abundant gas supplies to market could have such a damaging effect on the manufacturing sector.

“Gas exports should be pure good news for Australia,”? Mr Willox said.

“However, the strong benefits for investment and export earnings come with serious side effects for domestic manufacturing: tight supply and surging prices.

“Without reform, our rich energy reserves will no longer contribute to Australia’s competitiveness.”?

Key findings of the report:

  • Australian manufacturing output to contract by $A118 billion over the next seven years;
  • 14,600 manufacturing jobs to be lost;
  • Mining sector to contract by $A34 billion;
  • Agriculture sector to contract by $A4.5 billion; and,
  • Queensland, New South Wales and Victoria to suffer serious declines in manufacturing.

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