Gas reservation no answer for manufacturing woes

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13 August 2014

With some manufacturers still calling for domestic gas reservation, it is timely to examine Energy Supply Association of Australia (ESAA) forecasts for domestic gas consumption over the next two decades.

In an article for Business Spectator, energy analyst and commentator Keith Orchison notes, that in 2012 the ESAA forecast total national domestic demand would rise from 1128 petajoules at the decade’s start to 1560 PJ by 2020-21.

But now it projects that by 2020 demand will not even reach 950 PJ by 2020, and it won’t be much higher throughout the following decade.

Demand from the manufacturing sector, in particular, is forecast to decline dramatically.

Annual manufacturing sector gas demand now sits at 325PJ – down from 368PJ as the decade began. The ESAA says the decline will continue – to 242PJ in 2022-23 and 180PJ at the end of the 2020s.

The decline of Australian manufacturing – and its falling demand for gas – is not primarily driven by rising gas prices. It is about declining competitiveness driven by structural adjustment in the changing Australian economy.

To make Australia’s manufacturing sector more competitive, governments should focus on initiatives to boost national productivity and to encourage investment in industry by lowering tax burdens, improving regulatory efficiency, making labour markets more flexible and investing more in skills.

Attempting to help a declining manufacturing sector by hobbling a growing gas production sector would reduce the incentives for investing in gas exploration and production and would eventually actually impair gas supply.

It would be the worst of both worlds – curtailing the growth of a successful sector while providing nothing more than a temporary sugar hit to a struggling sector.

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