East Australian manufacturing is facing a horror year this year, when the remainder of the automotive industry closes and gas-intensive manufacturing confronts gas price increases and future supply uncertainty.
Some expansion in food processing and packaging – tapping into Asia's burgeoning middle-class demand for safe, premium food – won't be enough to offset manufacturing job losses elsewhere. Is this just the market taking its course or is there a legitimate role for governments to play here?
In late 2014, I warned that the commercial viability of many gas-intensive manufacturing operations in NSW would come under pressure from rising domestic gas prices, with up to 3000 manufacturing jobs in jeopardy. Not only did governments fail to heed those warnings, but the federal government's gas forecasting agency also declared, just six months later, that there were no expected short-term gas supply gaps. Specifically, for the period to 2019, the Australian Energy Market Operator (AEMO) concluded: "No regions should expect gas supply gaps" and "In NSW, where a gas supply gap had previously been forecast, no gap is now expected."
The effect of these sanguine forecasts was to take the pressure off the search for a solution to gas supply shortages.
AEMO has since had a change of heart, late last year describing Australia's gas future as "at a crossroads". It is forecasting gas shortages and price increases arising from the demand for gas by LNG exporters out of Gladstone and the increasing use of gas as a transitional fuel to a low-emission power system.
AEMO now expects this increased demand, coupled with supply shortages, to lead to "declines in gas-intensive industry". But equalising gas demand and supply by forcing gas-intensive manufacturers to shut down isn't the solution; it's the problem.
AEMO's 2016 national gas forecasting report assumes Australia will meet its carbon emissions reduction obligations under the 2015 Paris climate change agreement such that, during the 2020s, gas-powered generation will replace higher-emitting coal, "complementing the increase in renewables along a pathway to a new, lower-emissions power system".
If the large-scale destruction of gas-intensive manufacturing in eastern Australia is to be averted and gas is to play the role of a transitional fuel in meeting Australia's Paris commitments, then governments, industry and unions will need to consider, as a matter of urgency, ways to make extra, reliable supplies of gas available.
One option is to lift moratoria on coal-seam gas exploration and development in eastern Australia. At this stage, there is no sign that either the NSW or Victorian governments will do this. The only coal-seam gas project under active consideration is near Narrabri in north-west NSW.
Another option is to construct a floating storage vessel in eastern Australia to receive LNG from Western Australia or from the oversupplied international market. As reported in The Australian Financial Review on January 13, feasibility work is under way on possible locations for such a facility.
The third possibility is the construction of a pipeline from the Northern Territory to Moomba in South Australia, connecting NT gas reserves to the eastern Australian gas grid. Championed by Ian Macfarlane when he was industry minister, the 1000-kilometre pipeline between Alice Springs and Moomba could link the Browse Basin to eastern Australia. Since the federal government is considering a $1 billion concessionary loan from the Northern Australia Infrastructure Fund for a rail link from the Adani coalmine in Queensland, it might also consider a loan for the proposed pipeline.
Last December, federal government ministers met with gas suppliers to discuss the looming gas shortage. Publicly, the ministers pointed the finger at the state governments for their moratoria on coal-seam gas exploration. While finger pointing might seem like clever politics, it will not avert a crisis in east Australian manufacturing. Australia has a looming gas crisis with no national strategy to deal with it.
All relevant parties – state and federal governments, industry and unions – need to get together to find enduring solutions to a threat that will cost jobs in outer urban and regional Australia, and at a time when large job losses will occur from the closure of the remainder of Australia's automotive assembly industry.