The boom in liquefied natural gas (LNG) exports which is expected to triple domestic prices on the east coast of Australia is accompanied by serious side effects for manufacturing, agriculture and non-gas mining, including substantial job losses.
Six key industry groups, representing the bulk of Australia’s manufacturing sector employing 950,000 people, commissioned forecasters Deloitte Access Economics to model the economic consequences of expensive gas.
The forecaster found that under current policy settings, the boom in LNG exports will lead to a loss of manufacturing output of $118 billion in net present value terms and a loss of 14,600 manufacturing jobs by 2021.
The groups are: the Australian Industry Group, the Australian Aluminium Council, the Australian Food and Grocery Council, the Australian Steel Institute, the Energy Users Association of Australia and the Plastics and Chemicals Industries Association.
The alliance says an efficient and competitive gas market is needed to to avoid dire consequences for Australia’s manufacturing industry and to ensure the diversity and resilience of the economy.
Among the recommendations is that restrictions be lifted from fracking including removing the Victorian fracking/CSG moratorium and the New South Wales CSG exclusion zones.
Industry also wants the ACCC (Australian Competition and Consumer Commission) and/or the Productivity Commission conduct a review of the gas market, aimed at increasing efficiency, transparency and competitiveness.
Australian Industry Group Chief Executive Innes Willox says it’s a paradox that bringing Australia’s abundant gas supplies to market could have such a damaging effect on the manufacturing sector.
“Gas exports should be pure good news for Australia,” he says.
“However, the strong benefits for investment and export earnings come with serious side effects for domestic manufacturing: tight supply and surging prices. Without reform, our rich energy reserves will no longer contribute to Australia’s competitiveness.
“We need both a growing LNG export industry and a diverse industry base with a strong manufacturing sector. We need action on two fronts – get more gas flowing, by replacing blanket bans on gas production with strong but workable regulation; and reform the market that gas is sold in to boost competition and transparency.”
Other impacts of the LNG export boom identified by Deloitte Access Economics:
- Other sectors of the Australian economy, including non-gas mining and agriculture, will contract by approximately $34 billion and $4.5 billion respectively.
- Despite overall benefits from LNG gas exports, Queensland’s economy will also suffer the most severe decline in non-gas sectors, with a cumulative $60 billion contraction in manufacturing output and a $22 billion contraction in mining output in net present value terms to 2021.
- New South Wales and Victoria see serious declines in manufacturing output, accumulating to around $24 billion and $23 billion respectively in net present value terms by 2021.
- Overall manufacturing output is projected to be 3.61% lower in 2021; mining output 3.59% lower; agriculture 2.01% lower; and transport 1.79% lower.
- The loss of manufacturing output is halved in NSW, reduced by nine tenths in Victoria, and is $30.3 billion lower across Australia as a whole.
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