AIP: New Report Highlights Risks of Gas Export Boom

A report released by the Australian Industry Group and the Plastics and Chemicals Industries Association (PACIA) has identified both the benefits and potential economic risks associated with the coming boom in East Coast gas exports.

The report, Large scale export of East Coast Australia natural gas: unintended consequences, was prepared for the industry associations by the National Institute of Economic and Industry Research (NIEIR). Among the report’s findings:

• Gas supply may be insufficient to avoid constraining domestic use;
• Each petajoule of gas shifted away from industrial use towards exports means giving up $255 million in lost industrial output for a $12 million gain in export output. That is, for every dollar gained $21 is lost;
• Secure local gas supply is fundamentally important to a number of industries including non-ferrous metals and basic chemicals, plastics, pharmaceuticals and paints;
• Gas exports are predicted to rise from 2 million tonnes in 2015 to up to 24 million tonnes in 2023;
• Long term gas supply contracts have evaporated for local industry as a consequence of export commitments;
• East coast gas prices will rise, potentially to as much as triple the current $3-$4 per gigajoule; this increase would be several times larger than the costs related to carbon pricing; and
• Current policy settings favour exports over domestic gas sales.

Australian Industry Group Chief Executive Innes Willox said: “Ai Group and PACIA members have been concerned for some time that potential unintended consequences of the gas boom are not widely appreciated. Where there has been debate at all, it has centred on the shortcomings of possible responses such as gas reservation, rather than on the nature of the problem itself. For this reason, and to initiate broader discussion of these issues, our organisations commissioned NIEIR to prepare this report.

“While we are strong supporters of Australia’s minerals and gas exports, there is a need for public recognition and discussion of the risks, and debate over what steps can be taken to best manage them.

“There are no easy solutions, and indeed obvious practical economic difficulties, but all ideas should be on the table. Australia needs a competitive gas market and affordable energy will play an increasingly important role for the success of our industries including by creating long-term, sustainable employment. We need to get the parameters right,” Mr Willox said.

PACIA Chief Executive Margaret Donnan said: “NIEIR’s report raises doubts that the supply of natural gas will be sufficient in coming years to meet both export commitments and domestic needs. Like the Prime Ministers’ Task Force on Manufacturing and the Queensland Government’s recent Gas Market Review, the report highlights that major gas users currently face great difficulty in securing supply. NIEIR questions whether production and proven reserves will expand fast enough to provide confidence in secure long-term supply to all users.

“Industry is not looking for hasty solutions. We are not arguing for domestic gas reservations or other measures that would harm investors. Indeed, it is important for all governments to remove unnecessary barriers to the increased production of gas.

“Australia needs to remain a safe destination for investment and to make the most of our export opportunities. Indeed, it is important for all governments to remove unnecessary barriers to the increased production of gas from the unconventional resources that can now be safely accessed. But we also need to understand the real economic risks associated with the export of Australia’s East Coast natural gas resources and that is the purpose of this report.

“Natural gas is embodied in products we use every day; it keeps the lights on and industry humming. It is intrinsic to the economy. If that resource is at risk of insecurity, we need to know – and respond – as soon as possible,” Ms Donnan said.

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LNG World News Staff, October 17, 2012; Image: AIP