One in five heavy manufacturers will shut down due to spiking energy costs, says research for the Australian Workers’ Union, which on Monday launches a campaign to convince legislators to adopt a domestic gas reservation policy.
Alcoa and Australian Paper, which employs 1300 people in Victoria and NSW, have backed the Reserve Our Gas campaign.
With gas prices predicted to spike as LNG exports ramp up in July 2015, the largest blue-collar union wants a percentage of gas to be reserved for domestic use at a “fair price”.
Because neither major political party supports gas reservation, the union will use advertising and social media to try to convince businesses and householders a policy shift is needed.
Alcoa Australia boss Alan Cransberg said energy security depended on gas reservation, while Australian Paper’s energy and regulatory reporting manager Brian Green said gas producers refused to sign domestic supply deals because they hoped to get higher prices offshore.
The AWU will tour the country targeting householders, businesses and MPs in marginal seats or with large manufacturing workforces for “as long as it takes”.
“Australians also have a right to know their rapidly rising gas bills are actually completely preventable,” AWU national secretary Scott McDine said. “We just need to bring in laws to look after the local population.”
AWU-commissioned research by BIS Shrapnel suggests one in five heavy manufacturers will shut down within five years and more than 90,000 jobs will disappear by 2023 unless there is a change in energy policy.
The report says 20 per cent of gas should be set aside.
Alcoa is Western Australia’s largest user of natural gas. Mr Cransberg said it faced a shortfall by 2020.
“Our understanding of the market indicates that supplies will be insufficient to meet domestic demand in 2020,” he said. Were it not for the [WA] reservation policy, the shortfall would kick in as early as 2016,” he added.
“It is Alcoa’s strongly held view that in the absence of any other government action, either state or federal, to facilitate new entry into domestic gas production, a reservation policy is essential to providing some form of energy security for Australia,” Mr Cransberg said.
“Securing sufficient gas to fulfil domestic needs does not need to come at the expense of the LNG industry. It is feasible to have a vibrant and growing LNG sector and still meet the needs of the domestic market.”
Gas producers argue such policies scare potential investors away but the BIS Shrapnel report says WA has received $88 billion in investments since reservation started in 2006.
Mr Green said his gas contract had two-and-a-half years to run and finding a new one was hard.
“In the last 18 months I have had one gas offer, which was totally uncompetitive with very onerous terms and conditions,” he said.
“I have two of the major retailers who have declined to make an offer, one because they can’t price gas because they don’t have a contract themselves beyond 2017, and the other, despite saying in public they will offer contracts, has declined to offer a contract or even talk about a contract with us,” he said.
The first LNG exports from Queensland are due by the end of the year, from BG Group’s Queensland Curtis project. Shipments will follow next year from Santos’s Gladstone LNG venture and Origin Energy’s Australia Pacific LNG project.
The development of facilities that convert gas into liquid form mean gas can be exported from Australia for the first time. It is anticipated that gas prices for domestic sales will rise to meet the prices that exporters can get overseas.
“All of the producers are seeking to maximise the return for their product and that’s fine. That is a normal market operation,” Mr Green said.
“Declining to make a bid, I would suggest is not normal market operation and is indicative of a market failure. The real nub here is successive governments of all persuasions have failed to provide a holistic energy policy and this in turn has led to domestic users effectively subsidising the export of gas and the export of jobs offshore.”
Gas producers argue the solution is to open new sites in NSW and Victoria, where anti-coal seam gas campaigners have spooked governments.
The federal government’s energy green paper, released last week, said the potential for “near-term supply shortage in the eastern market is largely due to the start of LNG exports from Queensland”.
It also noted: “Forms of gas reservation, national interest tests or export controls have been adopted domestically in Western Australia and Queensland (where they are in place but yet to be applied), as well as internationally in the United States and Canada.”
The Australian Petroleum Production and Exploration Association said the government had dismissed domestic gas reservation policy as a solution to a tightening eastern Australian gas market. “A policy of domestic reservation would not bring on new supplies for manufacturers or other users and the green paper correctly notes that increasing gas supply is the best way to ease gas market pressures,” APPEA said in a statement.
The group has also rejected claims that suppliers are not willing to do deals domestically.
The AWU says Israel, Indonesia and Egypt have laws requiring domestic reservation, while in the United States, exports must be in the public interest, which has served as a go-slow for export projects, therefore supplying the domestic market.
The AWU has not prescribed a particular policy, saying all options should be on the table.
Nor has it ruled out seeking to convince governments to impose retrospective requirements on the LNG export projects in Queensland. Such a move would be highly controversial because of the messages it would send investors generally.
“Of course our abundant natural gas can and should be exported to the world,” Mr McDine said. “But a portion of it also needs to be providing a competitive advantage to our local industry, and a cost of living benefit to Australian consumers. We can have both, just like every other gas-exporting nation.”
Mr McDine said there were already a number of high-profile examples of investments being delayed or moved offshore.
Incitec Pivot announced it will build a $US850 million ($969 million) ammonia plant in Louisiana rather than in Australia.
Coogee Energy was also considering building a billion-dollar methanol plant in the US, rather than Laverton, Victoria, because it cannot secure the gas it needs.
And BASF has warned that $1.5 billion of capital earmarked for Australia will not be spent if there is continuing uncertainty.