"The new Gas Heads of Agreement agreed to by the Federal Government may avoid a shortfall of supply but leaves east coast Australian industry facing back-breaking gas prices for the foreseeable future," Innes Willox, chief executive of the national employer association, AiGroup, said today.
"The agreement is crushingly disappointing for Australian industry reliant on gas to make the products that Australians need. As they roll off existing gas contracts, Australian manufacturers of bricks, chemicals, plastics, paper, aluminium, steel, fertlisers, cosmetics, gloves and masks will increasingly face crippling energy bills they will have to pass onto consumers.
"The Heads of Agreement seeks to ensure that local prices are no higher than international levels. But there is nothing in it that will see local prices fall below international levels either. In the wake of Russia's invasion of Ukraine, the cutoff of Russian energy exports to Europe and Europe's desperate efforts to secure replacement gas around the world, international gas prices have soared to unprecedented levels. Eastern Australia is completely exposed to those prices. Our wealth of gas production and our long-standing bipartisan national energy policies provide no shield against them whatsoever.
"The ACCC export parity metric recognised in yesterday's Heads of Agreement currently indicates local spot gas prices of between AUD$60 and AUD$70 per gigajoule over the next year. That would be around 20 times the average price before East Coast exports of Liquefied Natural Gas began, and around 8 times the previously expected export parity range.
"Most gas is bought on longer contracts, not spot, and those prices will be somewhat lower. But even so, we are looking at serious and deeply painful increases in the cost of many basic products, of heating homes in winter, and of much of the firming capacity on which our electricity system currently relies.
"The Government's ambitions for managing inflation, growing industry and transitioning to clean energy are threatened by these gas price rises.
"The agreement may have sidestepped the gas supply shortages for 2023 foreshadowed by the ACCC. This is welcome. However, more risks open up later this decade, and more action will be needed both on supply and on demand efficiency and substitution to respond.
"High Australian gas prices have now been locked in. As a result, the Government will need to take the kinds of expensive but urgent steps we are seeing in Europe to financially support energy users – to help them weather the storm and reduce their exposure to the costs of gas. That will not be cheap. The costs of inaction will be higher," Mr Willox said.
