It comes as gas prices have soared to historic highs in recent years, placing enormous pressure on manufacturers that rely on gas for energy or as a feedstock. While Australia is one of the world’s biggest exporters of natural gas, most is produced in the nation’s north, far away from demand centres in the south-eastern states, and is sold on long-term contracts to overseas buyers. The Australian Energy Market Operator has warned that Victoria, NSW and South Australia face a gas shortage as early as 2023 as output from offshore reserves in the Bass Strait rapidly declines.
Manufacturers have voiced growing frustration in recent months that large gas producers have not dropped their long-term contract prices in line with the sharp price falls on the LNG spot market caused by the coronavirus-driven collapse in energy demand. The measures announced on Tuesday did not go as far as some gas producers had feared, and appear more focused on lowering prices over the long run as opposed to any immediate price intervention.
Oil and gas giant Santos described the measures as “good for jobs, good for consumers, good for regional development and good for future resource development and manufacturing in Australia”.
“Private investment will come with open markets and competition, a stable policy and regulatory environment, but is not helped by continued threats of intervention,” Santos chief executive Kevin Gallagher said.
While some gas customers had been hoping for stronger government interventions, even the most vocal critics of south-eastern Australia’s runaway gas prices endorsed the federal government’s plan.
Nick Miller, chief executive of construction materials firm Adbri, said the policy would increase competition in the market, lower prices and provide it the confidence to invest in its manufacturing chain.
“Our expectation is that competition will drive efficiency, and efficiency indirectly should drive lower prices,” Mr Miller said.
“That’s good news for our business, and that’s good news for keeping jobs in Australia and keeping local manufacturing in Australia.”
The price of gas paid by Adbri, which uses it to produce industrial minerals like lime and clinker to make cement, has doubled since 2015.
Alberto Calderon, chief executive of explosives manufacturer Orica, said he “100 per cent” supported the new gas policy.
“You need something to provide competitive, reliable, firm energy,” he said.
“It’s not going to make a difference tomorrow, but if these actions are implemented it will lead to competitive prices for gas,” he said.
Incitec Pivot boss Jeanne Johns said the reforms would support jobs and accelerate the economic recovery.
“By creating a domestic gas market with globally competitive gas prices, manufacturers will have the certainty required to attract investment and creation of high-quality jobs,” she said.
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Darren is the mining and agribusiness reporter for The Age and The Sydney Morning Herald.
Business reporter for The Age and Sydney Morning Herald.