Concerns that big LNG users will take profit hit as Australia's gas exports grow

An ANZ report predicts that LNG will take over from iron ore as the main driver of Australia’s exports and will reach $50 billion in value by 2020. There is a concern that this will lead to prices rising to a point where they will reduce the profits of heavy commercial users by up to 20%.

Manufacturing Australia (MA) is therefore calling for a ‘use it or lose it’ policy to force gas companies to bring reserves to the market to avoid “a train wreck coming down the line’’.

MA Executive Director Ben Eade said companies had already moved investment offshore because of the issue and that would only worsen if nothing was done.

The report says demand in the eastern states for gas will increase dramatically by 2017 due to export expansion which will soak up domestic supply.

“But an examination of the current break-even costs for LNG development together with low gas contract prices shows there is limited incentive to fund further expansions,’’ it said. “Those Australian manufacturers which are the heaviest users of natural gas, and cannot pass cost increases on to their customers due to international competition, will be hardest hit by the forecast gas price increases.”

The impacts on business will be widespread and include food, beverage and grocery manufacturers as well as wood, pulp and paper manufacturers. Iron and steel product manufacturing, non-ferrous metals and chemicals manufacturing will also be hit.

“If Australia’s major gas-consuming companies take no action ... within five years the aggregate profitability across the companies could decline by 19%,” ANZ said.

Source: The Courier Mail