By John McQueen, Interim ADF chief executive officer
It is no secret that gas prices are on the rise.
An essential resource, gas is used to pasteurise milk and produce the heat needed for our driers to create milk powder.
Gas is already a significant input cost for dairy processors in Australia. Based on reports, gas prices are forecast to rise between 50-100 per cent by 2019. This will impact the processing of dairy and increase the manufacturing costs of milk products. The impact of any gas price rises can and will be felt by dairy farmers through their processors.
The rise in gas prices are due to supplies being diverted to meet international liquefied natural gas supply contracts, low levels of exploration and forecast production, restrictions on onshore exploration and development in some states and territories, and infrastructure constraints. Tighter gas supply translates to higher gas prices.
As the laws of supply and demand would suggest, Australians, sitting on bountiful gas reserves, should be enjoying cheap gas prices. But that’s not the case as a high percentage of our gas is being exported overseas.
Further to this, last year, the Victorian Government with bipartisan support banned unconventional gas exploration, including the controversial process of hydraulic fracturing (fracking), and extended a moratorium on onshore conventional gas exploration until the end of the decade.
New South Wales and Tasmania also have various bans on onshore gas exploration and development in place. This means that the competition by domestic and international consumers for gas from existing fields will intensify, which will drive up prices further.
There are surely many policy levers that can be considered in this environment. One such lever was implemented more than 30 years ago, and formalised in 2006, as the North West Shelf offshore gas production was being developed. The WA Government implemented a policy of domestic reserve of 15 per cent to ensure their domestic market was not adversely impacted from the development of export markets.
It is understandable why many communities and farmers are concerned with hydraulic fracturing (fracking), and why there was bipartisan support to ban this type of unconventional gas exploration. However, we support onshore conventional gas mining which currently has a moratorium and, according to the Australian Competition & Consumer Commission, is needed as insufficient reserves exist for domestic and international demand.
In response, the COAG Energy Council will be implementing a package of reforms. Even so, there is still uncertainty whether sufficient gas will be available to meet future domestic demand.
The dairy industry along with other manufacturers are concerned about the policy failures in Australia when it comes to gas availability and prices. We need to add our voice to the growing list of industry groups who are calling for urgent action to address the shortage of gas on the domestic market.