Australia’s gas crisis is worse than you might think. Industries warn thousands could lose their jobs and consumers will pay more

Australian manufacturers facing massive increases in gas prices are warning they could be forced to shut, with tens of thousands of jobs on the line. 

Gas prices on the spot market have quadrupled amid supply constraints, local coal-fired power station outages, and the war in Ukraine. 

Australia’s largest plastics producer Qenos buys about 40 per cent of its gas on the open market. 

“Prices have gone up in the spot market to between $30 and $40 a gigajoule. In fact, that’s in a month alone, that’s an increase of 300 to 400 per cent,” Qenos chief executive Steve Bell said.

“For energy-intensive businesses like ours that is not sustainable.”

Most energy-intensive businesses are on cheaper long-term contracts. But Steve Bell says if prices don’t come down by the time companies are coming off those contracts, it won’t just be 750 jobs at his company that are on the line.

“If we can’t get, as a country, more competitive energy inputs into our industrial base, then a lot of jobs are at risk in in the Australian manufacturing sector,” he said.

“Our competition is from overseas. And if we don’t have competitive inputs with what our competition has, we can’t compete in the market.”

Typically, manufacturers on contract rates pay around $10 a gigajoule. The price on the spot market was similar but now those relying on the spot market are paying $40 a gigajoule — and that’s after the Australian Energy Market Operator (AEMO) imposed temporary price caps on the New South Wales, Queensland and Victorian markets.

On Wednesday, AEMO triggered the Gas Supply Guarantee Mechanism for the first time since it was introduced in 2017. The mechanism calls for the market to release supply and come up with a plan to address a potential shortfall.

Energetics consultant Gilles Walgenwitz says coal-fired power station outages, cold weather and the war in Ukraine are to blame for high gas prices.(ABC News: Daniel Irvine)

Analyst Gilles Walgenwitz said without enough renewables capacity in the grid to make up the shortfall, local coal fired power station outages were also pushing up gas prices. 

“We have about six gigawatts of coal capacity missing in Queensland, six gigawatts in New South Wales. That’s huge, when you compare to the total capacity normally available,” he said.

“And so, we have much more gas power generation coming into play to meet the demand and it happens that at the same time, the price of gas is extremely high.”

Australians pay global prices 

qenos
Qenos workers’ jobs are on the line. ( ABC News: Pete Healy)

The prices we pay for coal and gas are linked to the international market, despite Australia being a major exporter. 

“The European countries need more gas to replace pipeline gas from Russia, they are therefore very eager to contract for liquefied natural gas that puts lots of pressure and demand pressure on the Asian LNG price,” Mr Walgenwitz said.

Mr Walgenwitz said one solution is for exporters to charge domestic users less.

“There is a disconnect there. This could be sorted by the federal government in the short term.”

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The cost of living is set to soar as the gas crisis bites.

In Western Australia, 15 per cent of liquefied natural gas available for export must be reserved for domestic use, which has kept prices at around $5 a gigajoule. 

Manufacturing Australia, which is the peak body for big companies like CSR, Incitec Pivot and Brickworks, wants help for the east coast. 

“If you manufacture in Australia, you’re essentially in most cases, a trade-exposed business. So you are limited in the extent to which you can pass input cost increases on to your customers,” he said.

Mr Eade said it was hard to put a number on how many manufacturing jobs are at risk, but the industry employs close to one million people in Australia.

“We could see energy prices like this, both in electricity and gas prices will reverberate right through supply chains,” he said.

“So it’s not about individual businesses, although clearly there are a number of businesses under acute pressure. But what we could see is a real dismantling of entire supply chains, in manufacturing, in agriculture and in other parts of industry and in transport.

“The government should invoke the Australian domestic Gas Security Mechanism because what we’re experiencing in eastern Australia right now is exactly the set of circumstances for which that mechanism was designed.

“We have an external shock, which has created severe disruption to global energy markets.”

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