Gas price impacts
An attempt to use data to understand the impacts of a gas price shock on manufacturing
The east coast Australian states experienced a price shock for natural gas supplies starting in 2010. From 2010–2016 the price of newly negotiated gas supply agreements for large industrial users more than doubled. From the start of 2016 to the start of 2017 wholesale natural gas prices increased up to two to three times.
Energy use behaviour of large manufacturing facilities located in east coast states was analysed to understand whether certain businesses were exiting the market, moving offshore or reducing production. Analysis largely relied on National Greenhouse and Energy Reporting (NGER) data.
It was not possible to observe the impacts of the price increase in these data. A likely explanation is that industry responses were delayed due to gas contracting timeframes and a lack of flexibility in manufacturing processes. If so it may be possible to observe impacts in the future.
Another possible explanation is that gas prices are not as significant as larger, more accepted drivers of manufacturing decline in Australia, such as the increase in supply of manufactured goods from low-cost sources abroad, compounded by the appreciation of the Australian dollar during the period of rising commodity prices (Langcake 2016). Gas supply was 1.1 per cent of manufacturing gross value added in 2015–16 (ABS 2017c). It has an additional impact through its 24.5 per cent contribution to electricity generation but this is still a small level of aggregate input.
On the other hand natural gas is particularly important for certain sub-sectors such as chemical manufacturing, and anecdotal evidence suggests the price shock impacted this sub-sector:
- In March 2016 Coogee Chemicals, which produced methanol at Laverton in Melbourne, indicated that high gas prices had forced it to mothball the plant and move production to the US. (Australian Financial Review 2017a)
- In September 2017 Qenos, which produces plastics at Altona, Victoria and Port Botany, New South Wales, noted that it would have to find efficiencies and cost savings following a 60 to 70 per cent increase in energy costs. (Australian Financial Review 2017b).
A plan to assess business performance by comparing NGER with BLADE data was unsuccessful but generated additional work to rectify the limitations for future research.
