Gas price hikes have industry pleading

While industry groups were focussing all their attention on the carbon price, something far more serious crept up on them – high gas prices.

A few weeks ago I wrote that Origin Energy’s CEO Grant King needed to be careful in attempting to scare people that the Renewable Energy Target and carbon pricing would push industry overseas. This was because rising gas prices (for which Origin is a major beneficiary) were a far greater threat to heavy industry.

Sure enough, yesterday a press release was put out by Manufacturing Australia (maybe a little ambitious a name considering it only has nine members) with the eye-popping headline:

Gas crisis threatens 200,000 jobs, Manufacturing Australia calls for rethink of industry support.

Manufacturing Australia was set-up by business personality Dick Warburton as an initiative to fight against the carbon price.

But while industry lobby groups were focussing all their attention on the carbon price (for which they received very large free permit entitlements), something far more serious crept up on them.

The chart below, illustrates how ACIL Tasman’s eastern states' gas price forecasts have ratcheted up quite markedly each year from 2010 to 2012. 

Graph for Gas price hikes have industry pleading

Source: Manufacturing Australia citing ACIL Tasman forecasts

This is expected to mean Australia’s gas prices on the eastern seaboard will rise from some of the lowest in the developed world, towards levels linked to northern Asian markets, just as occurred in Western Australia.

Graph for Gas price hikes have industry pleading

Source: Manufacturing Australia citing IGU World LNG Report 2011

Some of the industries Manufacturing Australian expects to be hardest hit are detailed in the chart below. With gas prices expected to double, you can appreciate that this would have a dramatic impact on these industries’ cost structure.

Graph for Gas price hikes have industry pleading

Source: Manufacturing Australia

Interestingly each of these industries, other than bricks and roof tiles, are also deemed to be emissions intensive industries under the carbon price and the Renewable Energy Target. They receive concessions for more than 90 per cent of the cost from these schemes.

The table below outlines each industry’s emissions profile and the carbon price impact as a proportion of revenue.  While revenue is not the same as costs (maybe about 10 to 25 per cent higher), it illustrates that after free permits the carbon price impact on these industries is dwarfed by the impact of doubling gas prices.

Graph for Gas price hikes have industry pleading

Data source: Australian Government(2012) – Establishing the eligibility of emissions intensive, trade-exposed activities under the Jobs and Competitiveness Program and Renewable Energy Target

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