Australia’s LNG Boom: The Warning That Came True
In 2014, Deloitte warned that exporting Australia’s gas wealth would impose a heavy price on domestic manufacturing. Within years, factories were closing and aluminium smelters were cutting production.
Australia was promised a gas export bonanza. Manufacturers were warned to prepare for the bill. In July 2014, as Queensland’s enormous liquefied natural gas projects approached operation, Deloitte Access Economics published a report examining what the transformation would mean for Australian industry.
Its message was uncomfortable: the export opportunity could enrich gas producers while undermining businesses that depended on affordable domestic energy. The country could sell more gas to the world and become a more expensive place to make things.
More than a decade later, that central warning looks painfully well founded. Regulators documented soaring gas prices, manufacturers identified energy costs in closure decisions, and aluminium producers curtailed output because electricity had become too expensive.
Advertisement:
The warning on the table
Commissioned by six industry associations, including the Australian Aluminium Council and Australian Industry Group, Deloitte’s Gas market transformations—Economic consequences for the manufacturing sector (PDF) estimated cumulative manufacturing output losses of $87.7 billion to $118.1 billion over 2014–2021, in discounted terms.
By 2021, employment in the selected manufacturing industries could be lower by roughly 12,200 to 14,600 full-time-equivalent jobs. The harsher scenario also estimated cumulative output losses of $33.8 billion in mining and $4.7 billion in agriculture.
These figures measured losses against a modelled alternative without eastern LNG development and with North West Shelf gas recontracted domestically. They were not forecasts of a $118 billion fall in annual manufacturing output.
Deloitte acknowledged benefits for the gas industry and other sectors. Its warning concerned the distribution of those benefits and costs: manufacturers exposed to international competition would struggle to pass higher energy bills on to customers.
Australia becomes the cautionary tale
The alarm reached beyond Australia. On 30 July 2014, the Australian Financial Review published John Kehoe’s “Australia shows US how not to export gas”. We had to go looking for that link – the original bookmarks were
A contemporary BIS Shrapnel report, preserved in an Australian Workers’ Union submission to the ACCC (PDF file), recorded that Australia’s experience and Deloitte’s findings were being cited in the US congressional debate over LNG exports.
It also reported that Incitec Pivot chief executive James Fazzino had explained to US legislators why his company chose Louisiana for an ammonia plant: favourable business conditions and access to cheap, plentiful gas.
Australia’s resources were becoming an export success story. America’s cheaper energy was helping attract the factories.
From warning to factory gate
By September 2017, the ACCC was documenting the squeeze. Historical gas prices of $3–4 per gigajoule had given way to east-coast offers generally around $10–16/GJ.
The regulator identified Queensland’s LNG projects as a significant disruption to the domestic market and its supply–demand balance. More than one-third of the industrial and commercial users it interviewed were considering reducing production or closing because of high gas prices.
The consequences soon extended beyond threatened shutdowns.
In May 2019, the ACCC pointed to Dow Chemical’s decision to close its Melbourne manufacturing plant, partly because of high gas prices. Packaging manufacturer RemaPak and brick and paving producer Claypave had entered administration, with rising gas costs identified as an important contributing factor.
The regulator reported that most commercial and industrial gas users would pay more than $9/GJ that year, and some more than $11/GJ. This damage was occurring within Deloitte’s forecast period, years before the global energy turmoil of 2022.
Advertisement:
Aluminium’s electricity shock
Aluminium illustrates how the problem spread beyond direct gas consumption. Alumina refining requires substantial heat and steam; turning alumina into aluminium demands enormous amounts of electricity.
The ACCC explained the connection in 2017: expensive gas raises the cost of gas-fired electricity generation, feeding into electricity prices and delivering another blow to industry.
At Queensland’s Boyne Smelters, the consequences were tangible. In March 2017, Rio Tinto announced a 14 per cent production cut after failing to secure a competitively priced electricity contract. Its annual results subsequently confirmed that higher power prices had prompted the curtailment.
In NSW, Tomago’s 2017 submission to the ACCC warned that electricity costs could force it to reduce production by up to five per cent. It explicitly identified high domestic gas prices as a contributor to higher electricity prices across the market.
Tomago could not simply charge customers more. Aluminium prices were determined internationally, leaving the smelter to absorb the squeeze. Its submission also forecast that its direct gas expenses would more than double.
Portland’s experience demonstrated the importance of affordable power to industrial survival. In 2021, Alcoa announced new electricity agreements alongside proposed federal support of up to A$19.2 million annually for four years, with Victoria agreeing in principle to match the contribution. The federal arrangement recognised the smelter’s ability to shed electricity demand during grid emergencies.
What hindsight can prove
LNG exports were not responsible for every industrial setback or every electricity-price increase. Tomago also identified generator market power and generation closures. Prices fluctuated: the Australian Energy Regulator reported average wholesale gas prices below $6/GJ across monitored markets in 2020. Western Australia’s separate market also had a different experience.
Nor has the evidence established that manufacturing lost precisely $118 billion because of the gas-market transformation. Verifying that estimate would require separating the export effect from other economic changes and reconstructing what would otherwise have happened.
But the central warning needs no such reconstruction. Higher gas prices, pressure on electricity costs, factory closures and curtailed aluminium production are documented facts.
Australia had been warned that an energy export boom could weaken the industries using that energy at home. Within a few years, the warning had moved from an economic model to the factory floor.
Political responsibility crosses party lines
Julia Gillard’s Labor government granted federal environmental approvals to Queensland Curtis LNG and Gladstone LNG in October 2010, and Australia Pacific LNG in February 2011, enabling the three major export projects at the heart of the east-coast transformation.
Tony Abbott was prime minister when Deloitte published its warning in July 2014; Malcolm Turnbull held office when Boyne cut production and the ACCC documented the gas-price squeeze in 2017; and Scott Morrison was in power when the ACCC identified factory casualties in 2019 and Portland’s power-support package was announced in 2021.
Labor therefore faces scrutiny for the approvals that enabled the boom, while successive Liberal–National Coalition governments must answer for how effectively they protected domestic industry as the warnings became reality.
All governments bear responsibility for the generous tax breaks that the largely foreign-owned LNG gas industry has enjoyed despite record profits and profoundly impacting the entire manufacturing sector.
Advertisement:
Related stories
LNG Exports Killed Australian Manufacturing
WA LNG Exports Threaten Domestic Gas Supply
The Truth About Richard Denniss and The Australia Institute
LNG producers must make more gas available to manufacturers
CSIRO Reports 20% Increase in Methane Emissions Over 20 Years
Groundwater Baseline Data Needed Before Fracking Begins
What are Nature-Positive Solutions?
Australia’s Billion-Dollar Fossil Fuel Subsidies
Government’s Gas Strategy Challenges NSW Net Zero Goals
Tax Avoidance Taskforce makes LNG companies pay tax
Gas Leaks … documentary by Four Corners, ABC Australia
How the Queensland Government fracked the state
Advertisement:
