Saturday, November 23, 2024

In Other News

Related Posts

LNG Exports Killed Australian Manufacturing

LNG Exports Cost Australian Manufacturing $118 Billion – Has the Gas Industry Been Worth It?

Australia’s manufacturing industry was hit with a $118 billion setback and the loss of approximately 15,000 jobs, largely due to soaring gas prices driven by the push for liquefied natural gas (LNG) exports from Gladstone, Queensland. This decision to export LNG, approved in 2010 without any cost-benefit analysis, has dramatically affected domestic gas availability and affordability.

The Deloitte Access Economics report from 2014 foresaw this impact, highlighting a significant financial and workforce toll on Australian manufacturing as a direct result of rising gas prices.

The report was sent to all 535 members of the US Congress by the Industrial Energy Consumers of America organisation as an example of how not to export gas. “Natural gas use in manufacturing can be the “job creation” engine that the U.S. desires. But to do so, the U.S. must not make the mistakes made by Australia, who did not place any restraints on the volume of LNG exports.”

“Overall, the manufacturing sectors included in the modelling suffer an $88 (IES)– 118 (SKM) billion loss of income in NPV terms from 2014-2021, as a consequence of gas market transformations,” the Deloitte report said (pdf).

However, despite these warnings, subsequent interventions and regulations have failed to provide substantial relief to the manufacturing industry.

In recent statements, former Treasury Secretary Ken Henry criticized Australia’s approach to the mining boom, noting that it has hollowed out the nation’s manufacturing sector and contributed to abysmal productivity, lower wages, reduced living standards, and worsening intergenerational inequality.

Dr. Henry added that the sector has been “hollowed out” through a strong appreciation of the real exchange rate during the early 2000s. Dr. Henry suggests that the adverse effects on the manufacturing sector could have been mitigated by levying a tax on non-renewable resource exports—a step he deems essential to preserve Australia’s egalitarianism and manufacturing resilience.

Manufacturing output and employment have fallen steadily as a share of the Australian economy for the past three decades. Of the 8.8 million individuals whose occupations or industries could be confirmed in the 2006 census, 10.7 per cent were employed in manufacturing. The number fell to 6.2 per cent in 2021. 

Manufacturing Indicators

Manufacturing output saw consistent growth through much of the 1990s before leveling off in the early 2000s. Today, it remains close to levels seen a little over a decade ago. Meanwhile, the overall Australian economy has expanded significantly over the past two decades, causing manufacturing’s share of total output to fall noticeably. Employment in the manufacturing sector has also decreased during this period, with labor productivity growth keeping pace with the broader economy.

Many businesses meet their energy needs from their own gas-fired turbines. The main industrial uses of natural gas and gas-derived products are producing:

° non-ferrous metals (e.g. aluminium, copper, zinc, tin)
° chemicals and polymers (e.g. fertilisers, antifreeze)
° non-metallic mineral products (e.g. glass, ceramics, cement, bricks)
° plastic packaging for foods and beverages.
° Gas is also needed in food preparation and processing, fermentation and brewing

Advertisement:

Absence of Cost-Benefit Analysis for LNG Exports

According to former government employee and whistleblower Simone Marsh, the Queensland Coordinator General approved the Gladstone LNG and QGC Queensland Curtis LNG projects without the required cost-benefit analysis.

Marsh was tasked with the approval of LNG in Queensland and warned that the Environmental Impact Statement (EIS) was incomplete, missing essential economic evaluations that could have highlighted the potential inflation in gas prices and corresponding detriment to the manufacturing industry.

Her warnings, however, were overlooked. This regulatory failure has directly impacted domestic industries, with Deloitte’s analysis projecting losses in the billions for Australian manufacturing by 2021 due to heightened gas prices and intensified competition for resources.

Gas industry successfully lobbied against PRRT resources tax

The Petroleum Resource Rent Tax (PRRT) formula allows gas companies to calculate the value of gas before it’s liquefied into LNG, which is taxable, and after liquification, which is not taxable. This allows companies to understate the value of the gas before liquification and overstate the value created by liquification.

Australia’s PRRT is considered one of the weakest resource taxes in the world, and one of the most generous to oil and gas companies. The profits from Australian gas extraction flow overseas to mainly foreign owners.

After years of numerous professional groups calling for a review of the PRRT, the Government held the Callaghan review of the PRRT in 20&7. The gas industry argued that if the PRRT was raised, they would take their investment elsewhere, even though this is where the gas is.

In 2017, the then-Treasurer Scott Morrison released the PRRT report saying that he will not implement changes, even though he acknowledged earlier that revenues from the tax have halved since 2012-13. The government’s Callaghan review of the PRRT recommended a cautious approach to reform, despite expert testimony indicating that the tax has missed out on billions of dollars in revenue.

The review also revealed that some gas projects may never contribute to the PRRT due to high “uplift rates” for deductions, which grow over the life of the projects. “The rationale for the current specific uplift rates is not entirely evident,” the report states, adding that “a consensus needs to be reached on the conceptual basis for the uplift rates.”

In the Government’s final response to the Callaghan PRRT review in 2018, then-Treasurer Josh Frydenburg removed onshore projects from the PRRT regime. Since onshore projects were brought into the PRRT in 2012, no revenue has been collected and that was expected to remain unchanged into the future, he said.

The Australia Institute is again calling on the Australian Government to urgently increase the Petroleum Resource Rent Tax. You can sign their petition, here.

Impact on Australian Manufacturing

Chemistry Australia, representing a critical component of the manufacturing industry, echoed these concerns in 2018, underscoring that the cost of gas has now become an unsustainable challenge for Australian industry.

Chemistry Australia CEO Samantha Read emphasized the urgency for policies to provide downward pressure on domestic gas prices, highlighting the need to ensure affordable gas remains accessible for Australian manufacturing. The rise in contract gas prices—up to four times higher over a short span—has severely undermined industrial productivity and job stability.

Ms. Read emphasized that for industries such as chemistry, gas is not only essential for energy but also as a core ingredient in manufacturing essential goods, from agricultural fertilizers to medical supplies. The chemistry industry alone utilizes 10% of Australia’s domestic gas supply, underscoring the essential role of gas in maintaining production across a range of everyday products.

Political and Economic Implications

Political leaders who advocated against imposing new taxes or regulations on mining claimed such measures would harm jobs in the sector. Ironically, Dr. Henry points out, these same leaders failed to prevent the elimination of hundreds of thousands of jobs in manufacturing over the past two decades.

He argues that protecting the mining sector at the expense of broader industry has been a costly oversight, leading to a loss of economic diversity and reduced resilience in Australia’s economy. The unchecked expansion of LNG exports has led to a rapid transformation in the gas market, with a devastating impact on domestic manufacturers reliant on affordable energy.

National Coordinator of Lock the Gate Alliance, Phil Laird, also criticized the federal government’s inaction, stating in 2014 that Australia is effectively selling its natural gas to international markets while ignoring the economic needs of local manufacturers.

He suggests that “small reserves in regions such as Pilliga in NSW will be extracted for export if it proves profitable, leaving communities to bear the environmental costs of depleted land and water resources.”

Geoffrey Cann
Deloittes gas guru Geoffrey Cann

Deloitte’s visiting Canadian gas guru, Geoffrey Cann wrote on his website in 2018: “By the way, I think it’s time to simply abandon NSW and VIC as gas precincts. The anti-development sentiment is too far entrenched. Those gas reserves should be sold off or turned back to the government, in favour of creative alternatives. In my view, it’s better for Queensland to simply own the entire east coast gas market and produce like mad, rather than trying to finesse a terra joule of gas here and there from piddly coal measures in NSW.

“I also think the sentimentalism over the loss of Australian heavy manufacturing is unbecoming of a staunch free market economy. Why not embrace what Australia wants to be, a tourism-agri-health country and use its gas assets for those purposes?” Geoffrey Cann wrote, his bold fonts, in a since deleted blog.

“But I wonder how many Australians understand how our celebration of mercantilist plunder has contributed to an erosion of the nation’s manufacturing capability, undermined labour productivity growth, and depressed the living standards of workers,” Dr Henry said in 2024.

Australian Gas Price history
Gas market prices according to the Australian Energy Regulator, 2011-2024

Call for Action and the Way Forward

The Australia Institute is calling on the Australian Government to urgently increase the Petroleum Resource Rent Tax. SIGN THE PETITION & Demand the gas industry pays its fair share. Fix the PRRT!

National oversight and more robust regulations could help mitigate the effects of future gas market transformations, fostering a more sustainable and resilient economic environment for Australian manufacturing.

The unchecked rise in LNG exports, initially approved without comprehensive cost-benefit analysis, has led to significant and preventable costs for Australian manufacturing. With a staggering $118 billion impact and the loss of 15,000 jobs, the consequences of these decisions have been exacerbated by a failure to account for long-term economic impacts on domestic industries.

Dr. Ken Henry’s remarks serve as a poignant reminder that prioritizing mining exports over manufacturing has left Australia with weakened productivity, stagnant wages, and diminished living standards. Strategic policy adjustments and a balanced approach to natural resource management are critical to safeguarding the future of Australian manufacturing and ensuring equitable prosperity across generations.

Was the Australian LNG industry worth it?

Between 2012 and 2017, Australia’s LNG sector experienced rapid expansion, propelling the country to the top as the world’s largest LNG exporter. By 2030, however, Australian LNG producers are expected to face heightened exposure to volatile spot markets, with uncontracted, low-cost gas from Qatar, increased U.S. production under Trump’s policies encouraging drilling, and excess LNG from portfolio players and major buyers flooding the market.

Future of Australian LNG
Click image to read IEEFA’s full report

Australia’s LNG exports are projected to decrease to 81 million metric tons in the 2023-24 financial year and further to 79 million metric tons in 2024-25, down from 82 million metric tons in 2022-23, according to a report from the Department of Industry, Science and Resources. This decline reflects reduced or halted production at certain facilities across the country, coupled with slower demand from key customers in Asia.

From 2025 to 2028, global LNG supply is anticipated to surge by 40% from Qatar and the USA, creating an oversupply that will sharpen competition among LNG exporters and traders, driving prices downward.

With the gas industry facing serious problems after 2030 from competing countries and renewable energy, it is no wonder they are behind calls for an Australian nuclear industry, knowing that will take decades to materialise, if at all … thus ensuring Australia’s reliance on their gas for decades to come.

With so little economic benefit for Australia, we are joining the call on the Australian Government to urgently increase the Petroleum Resource Rent Tax. SIGN THE PETITION

Related stories

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:

Mark Anning
Mark Anninghttps://1earthmedia.com/
Mark Anning has worked in the media since the mid-1970s, including manager & editor for international wire services, national & suburban newspapers, government & NGOs and at events including Olympics & Commonwealth Games, Formula 1, CHOGM, APEC & G7 Economic Summit. Mark's portrait subjects include Queen Elizabeth II, David Bowie & Naomi Watts. Academically at various stages of completion: BA(Comms), MBA and masters in documentary photography with Magnum Photos. Mark's company, 1EarthMedia provides quality, ethical photography & media services to international news organisations and corporations that have a story to tell.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Popular Articles

error: Content is protected !!