Australia has a wealth of coal and gas resources as well as renewable energy, so why are energy costs so high — especially for manufacturers?
Orica is the world’s largest provider of explosives and chemicals for mining as well as fertilisers for farming.
Gas is a critical raw material for the production of fertilisers, but rising costs on the volatile wholesale gas market are making it unattractive for the Australian company to continue production here.
“Electricity prices have gone up threefold [in the past 10 years], gas prices have gone up fourfold, while the cost of renewable energy is not cheap,” Orica managing director Sanjeev Gandhi said.
Orica employs 15,000 people across more than 100 countries, and Mr Gandhi says his company is threatening to increase investment in the United States if energy prices do not come down in Australia.
The company recently acquired assets there worth $1.5 billion.
“[The US is] pro-manufacturing, they’ve got cheap energy, they’ve got good gas supply and reserves. It’s one of the most attractive markets to invest today,” he said.
Orica managing director Sanjeev Gandhi wants a gas reservation scheme to help bring down gas prices. (Supplied: Orica)
Mr Gandhi said one solution to the problem in Australia is to increase the supply of gas.
But it is already too late for many Australian manufacturers.
“If you start investing today it takes three to 10 years to bring on new gas resources … [and] manufacturers won’t survive [that long],” he said.
Fertiliser manufacturer Incitec Pivot shut its Australian plants in 2022 due to high gas costs.
Plastics manufacturer Qenos went into administration last year blaming the lack of a reliable supply of gas and rising costs.
According to Statistica, in March 2024 Australia had the eighth most expensive electricity in the world, but the cost of gas was still lower than many European and Asian nations according to Energy Quest in May 2024.
Orica’s Yarwun manufacturing facility in Queensland which produces explosives and fertilisers. (Supplied: Orica)
Gas prices will stay high
The Australian Competition and Consumer Commission’s (ACCC) latest gas report in January 2025 is forecasting industrial demand for gas will remain constant even though the trend in other parts of the economy is towards electrification.
The ACCC said “industrial users do not have technically or commercially-feasible alternatives to gas … and their shift away from gas will depend on technological advancements”.
Wholesale gas prices have tripled over the past decade based on figures from the Australian Energy Regulator. (Supplied: Australian Energy Regulator)
Orica is pursuing renewable hydrogen as a replacement to natural gas in its manufacturing operations in NSW.
“But new technologies like renewable hydrogen need time to mature and will not fix the high energy costs facing Australian manufacturers today,” Mr Gandhi said.
He is calling on the federal government to establish a gas reservation scheme on the east coast, like the one operating in Western Australia, to help bring gas prices down.
A national gas reservation scheme has been under investigation since 2020.
The federal government did not respond to the ABC’s questions about a decision, but a statement from a spokesperson for Energy Minister Chris Bowen blamed the coalition for the gas shortfall.
“For 10 years under the former coalition government, AEMO warned about looming gas shortfalls … which led to a shutdown of the National Energy Market in winter 2022,” the spokesperson said.
“This government has turned that around, bringing on an extra 600 petajoules of domestic supply through enforceable commitments under our Gas Code of Conduct and securing gas supply until 2027.”
The ACCC report indicated the government’s policies have “contributed to an increased supply of gas on the domestic market in 2024, but prices remain materially higher than pre-2022 levels”.
“That is broadly consistent with what has occurred with international prices which have remained above the levels observed over 2020 and most of 2021,” according to the ACCC.
The report said the government’s enforceable commitments policy was not expected to generate significant increases in gas supply until 2026.
In a statement, the shadow minister for resources Senator Susan McDonald said the ACCC’s report “confirms that current gas supplies are now on a knife edge and that gas prices are still at least double what they were under the coalition”.
Food manufacturers struggling
Heather Brae Shortbreads supports the call for a gas reservation scheme to help bring prices down. (ABC News)
Heather Brae Shortbreads is a family-owned bakery in Melbourne, the oldest in the country, and employs 50 workers on the factory floor.
They bake jam tarts, Yo Yos, Melting Moments, and Chocolate Fingers, along with a lot of other products that are made for the supermarkets’ private labels.
Managing director Bassam Wakim said his energy bill had risen to $300,000 a year and it was getting harder to stay in business.
“We have three large, electric tunnel ovens and one large gas oven, a freezer room, the air conditioning in the office and factory, and mixing equipment. So we are a high energy user in the bakery,” he said.
Bassam Wakim of Heather Brae Shortbreads, a family-owned bakery in Melbourne. (Supplied: Heather Brae Shortbreads)
His energy bill went up 50 per cent in the past four years, but renewable energy was turning that around.
“We installed solar panels four years ago so our current electricity spend is down,” Mr Wakim said.
When the solar panels are paid off over the next two years the saving will be over $100,000.
But gas remains expensive and he is supporting the call for a gas reservation scheme to help bring prices down.
Gas ‘obscenely expensive’ in Australia
Bruce Robertson, a former stockbroker and fund manager who is now an independent energy consultant, said Australian manufacturers were “bleeding to death” due to high energy costs.
Energy analyst Bruce Robertson says an east coast gas reservation scheme is possible, but probably won’t happen. (ABC News: Sue Lannin)
He blamed the gas export companies operating the export terminal in Gladstone in Queensland.
“Exon, Woodside, Origin Energy, Konoco Phillips, the Australian company Santos — they control the market and set the price for gas,” he said.
In 2022 the ACCC delivered a scathing report on the east coast gas market which detailed concerns about price-fixing behaviour by exporters led by Santos, Shell, and Origin.
Upon its release, principal adviser on climate and energy at the Australian Institute, Mark Ogge, said “the ACCC report doesn’t use the word cartel, but it describes cartel behaviour“.
Mr Robertson said the price set for gas also sets the benchmark for electricity prices in the wholesale market, which is where manufacturers buy their gas, and it is “obscenely expensive”.
“Prior to [gas exporting from] 2015, gas and electricity was affordable. But since the gas cartel has been operating we’ve seen prices go through the roof,” Mr Robertson said.
Mr Robertson said neither side of politics were willing to address the issue because they were beholden to the mining companies who make substantial donations to all the major parties.
“We don’t have anyone who wants to look after the Australian people,” Mr Roberston said.
The Australian Electoral Commission released political donation figures last year which showed fossil fuel companies contributed $1.78 million to major parties with the money coming from the likes of Adani, Woodside, Santos, and Chevron.
Alternative energy solution
Liam Wagner is an associate professor at Curtin University’s Institute for Energy Transition, researching new technology in electricity markets and how gas prices work in the eastern states.
He thinks manufacturers should focus on alternative fuels like hydrogen rather than hope for government intervention.
“A gas reservation scheme will be difficult to implement [and] gas has to be priced at the international mark,” he said.
Dr Liam Wagner says manufacturers should focus on alternative fuels like hydrogen. (Supplied: Curtin University)
He agreed with Mr Robertson that there was not enough competition in the gas sector.
“There are limited suppliers, I agree, and more competition would reduce prices for large users,” Mr Wagner said.
He would like to see financial assistance for manufacturers to transition away from gas and electricity, and more cooperation in the sector to share the cost of setting up new energy facilities.
