PERTH (miningweekly.com) – The Australian Petroleum Production and Exploration Association (Appea) on Monday welcomed the findings of a research report on the effects of higher gas prices on manufacturers.

The gas-customer-commissioned report by advisory firm Deloitte Access Economics concluded that the manufacturing sector would experience the greatest reduction in industry output if gas prices rose, owing to the industry’s significant gas usage and its high trade exposure, which would limit the sector’s ability to pass on higher gas input costs.

Employment in the sector would also be significantly impacted, with the report predicting that by 2021, employment in the sector could reduce by between 12 227 and 14 626 full time jobs.

The report, titled ‘Gas market transformations – Economic consequences for the manufacturing sector’, indicated that increasing natural gas supply and putting downward pressure on gas prices was critical to the competitiveness of manufacturing. It was also clear that gas customers no longer saw gas reservation policy as a credible or workable solution to the challenges faced.

Appea said on Monday that the industry body had for some time been highlighting that state government restrictions on industry activity would impact on gas supplies. 

“It is encouraging that customers now both recognise and are advocating for the removal of artificial supply restrictions,” Appea said.

The industry body also pointed out that the report highlighted the economic benefit associated with the continued expansion of Australia’s liquefied natural gas (LNG) industry. Australia currently has A$200-billion worth of projects under construction and Australia was set to be the world’s biggest exporter of this cleaner burning fuel by 2018.

“The report finds gas production is one of the highest value adding industries in the Australian economy, which reflects the technologically sophisticated and innovative nature of natural gas production,” Appea noted.

The industry body pointed out that Australia had significant gas available for domestic and export markets, and added that by allowing market forces, rather than encouraging government intervention, to determine when and how Australia’s gas should be developed, these benefits could be realised to the benefit of all Australians.

“Rising prices do not equate to market failure, which is why other policy prescriptions contained in the report are unnecessary,” Appea said.

In addition to removing restrictions on gas supply, Appea added that the best policy response from government would be to assist manufacturers by focusing on initiatives that boost productivity and encourage investment, including through lower tax burdens, efficient regulation, ongoing investment in skills and greater labour market flexibility.

“This will give all companies – including those in the manufacturing sector – the best chance to adapt to structural pressures and increase their international competitiveness.”