Aussie manufacturers face energy crisis

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Australian manufacturers face a gas crisis, because of the Federal government’s export-first policies, according to the country’s largest brick manufacturer.

Thousands of jobs could be at risk, if the government doesn’t step in.

Lindsay Partridge, managing director of Brickworks Limited (BKW.AX), says the company is unable to secure long–term gas contracts for periods over two years, after gas prices soared in Western Australia, Queensland and NSW. Gas prices in Perth and Brisbane have almost tripled, while prices in Sydney have doubled, Mr Partridge has told the Australian Financial Review (AFR).

He suggested that it would be cheaper for him to import gas from the United States than buy it locally.

Dow Chemical and Alcoa have also said that they were unable to secure contracts for the supple of natural gas to fuel new factories, despite Australia experiencing a boom in liquefied natural gas (LNG) and coal seam gas (CSG). Several oil and gas companies like Chevron, Woodside Petroleum (WPL.AX) and Santos Limited (STO.AX) are developing huge LNG plants to export Australian gas to Chinese and Japanese markets.

The rise in gas prices has now forced the price of bricks up, adding thousands of dollars to the cost of new homes. That comes as the building and construction industry still face a subdued housing market, with building products manufacturer, Boral Limited (BLD.AX) announcing plans to sack around 1,000 employees.

Mr Partridge has told the AFR that the situation is being made worse in Australia’s eastern states because of the slow approvals process for new CSG projects, due to environmental lobbying. He commended the West Australian government for reserving 15% of gas produced for local use, but did not suggest that a national gas reserve policy was a solution.

According to the AFR, more than 125,000 manufacturing jobs have been lost since the global financial crisis, and Mr Partridge warned that many more jobs would be lost if the government doesn’t take action to avert gas shortages for local businesses.

Foolish takeaway

With the boom in shale oil and gas production in the US, local manufacturers may soon get their wish for cheaper gas supplies. Rumours abound that the US will soon be competing with Australia’s gas companies by exporting gas to Asia. That could see the likes of Woodside and Santos losing some of their offshore customers, resulting in a renewed focus on selling their products locally.

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Motley Fool writer/analyst Mike King owns shares in Woodside Petroleum. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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