Future Gas Strategy: consultation paper

Level 1, The Realm 18 National Cct Barton ACT 2600
E ben@manufacturingaustralia.com.au
P +61 2 6198 3285

Monday, 13th November 2023
Department of Industry, Science and Resources
Future Gas Strategy Taskforce
GasOptions@industry.gov.au

Future Gas Strategy: Consultation Paper (2023)
Manufacturing Australia submission

Thank-you for the opportunity to comment on the above discussion paper.

Manufacturing Australia (MA) is led by the CEOs of some of Australia’s largest manufacturing companies: Alumina,
BlueScope, Brickworks, Capral, Cement Australia, CSR, DuluxGroup, Incitec Pivot, Orora, Rheem, Sims Limited and
Tomago Aluminium. These companies are key to Australia’s sovereign manufacturing capabilities.

MA member companies provide direct and indirect employment to more than 100,000 Australians, operate more than
500 manufacturing plants or smaller facilities around Australia and support more than 25,000 downstream suppliers.

In addition, these companies have direct operations in more than 30 countries globally, and export to more than 50.
They are amongst Australia’s most innovation-intensive businesses, having spent more than $2bn on R&D over the past decade, and with more than 50 research partnerships in place with Australian universities and the CSIRO.

The exhibit below summarises the broad benefits afforded to the Australian economy from its domestic manufacturing capabilities.

Source: Low Emissions Manufacturing: Australia’s Opportunities. Manufacturing Australia/L.E.K Consulting. March 2022.
https://www.lek.com/insights/sr/low-emissions-manufacturing-australias-opportunities

Some Manufacturing Australia members are making separate submissions to this consultation, either in their own right or via industry-specific associations, with specific recommendations and data drawn from their industries.

This submission does not seek to replicate those comments, rather it outlines the key principles that are common across the Manufacturing Australia membership, and which we recommend be taken into consideration in the development of the Future Gas Strategy.

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Level 1, The Realm 18 National Cct Barton ACT 2600
E ben@manufacturingaustralia.com.au
P +61 2 6198 3285

Manufacturing Australia’s gas position:
Gas is a fundamental input to Australian manufacturing:
1. Gas is an essential and non-substitutable feedstock in plastics and chemical manufacturing.
2. Gas is widely used to produce high heat, pressure and steam that is needed in many manufacturing processes.
3. Gas fired generation is essential to a proper functioning National Electricity Market, in particular as the market
transitions to lower emissions technologies. Gas plays a crucial role, alongside other technologies, in “firming”
renewable electricity as coal-fired generation in the NEM decreases.

Security of domestic gas supply, at globally competitive prices, is therefore vital to continued investment in many trade-exposed Australian manufacturing industries. It is equally vital to an orderly and well managed transition to lower emissions technology.

Manufacturing Australia (MA) supports regulations and careful intervention to ensure security of gas supply, at globally competitive prices, in the Australian domestic market, for the benefit of households and industry.

Such regulations should aim to ensure that domestic gas supply is secure and contract prices in the domestic market are globally competitive. Gas prices for domestic customers should not be inflated by market concentration, supply scarcity, regulatory failure or the expectation that domestic customers pay for the recovery of LNG export costs (fixed or variable) which are irrelevant to their needs.

Future Gas Strategy: Manufacturing Australia comments
MA makes the following comments on the Future Gas Strategy Discussion Paper for consideration:

1. Manufacturing demand for gas is underestimated:
• The consultation paper underestimates demand for gas from Commercial and Industrial customers, over
both medium and long terms.
• With fewer mature and commercially viable technologies available to C&I customers than are available
residential customers, Manufacturing Australia expects C&I gas demand will remain resilient over both
medium and longer term horizons considered in the scenarios.
• Further, the paper assumes little-to-no growth in C&I gas demand arising from gas use as a “transitional
pathway” for industries step-changing from coal-based inputs. In some use cases, such as use of natural gas
to displace metallurgical coal in steelmaking, gas demand could increase significantly, while still delivering
net emissions reductions.
• The consultation paper also does not assume growth in gas demand from new industrial activity, such as
downstream processing of critical minerals or new investments in manufacturing capability. Such investment
is being actively sought and is manifestly in the national interest. The resultant impact on gas demand should
therefore be considered.

2. Green Hydrogen will take time to scale and become competitive:
• In conjunction with the above, the paper underestimates the technical challenges and expected timeframes
to scale and commercialise alternative technologies such as green hydrogen.
• For example, assumptions of commercial scale fuel switching to green hydrogen in the late 2020s are not
consistent with industry expectations or forecasts.
• The below exhibits demonstrate the importance of H2 for processing and H2 for heat as decarbonisation
pathways for Australian manufacturing. They also, however, demonstrate that these applications remain in
relative infancy, with substantial barriers to overcome, both in terms of technology readiness and cost
competitiveness, before they can be implemented at commercial scale.

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Level 1, The Realm 18 National Cct Barton ACT 2600
E ben@manufacturingaustralia.com.au
P +61 2 6198 3285

Source: Low Emissions Manufacturing: Australia’s Opportunities. Manufacturing Australia/L.E.K Consulting. March 2022.

3. Assumptions of linear demand destruction:
• Combined, these assumptions lead to the premise that C&I demand destruction for gas will be linear.
• MA doesn’t share this view. Rather, MA expects that demand will vary considerably by industry and is more
likely to be a series of stepchanges, including in some cases, increased demand over the medium-long term.
• In industries where electrification or green hydrogen are viable and competitive pathways gas use will
decrease in increments, rather than linearly, as new technologies are deployed that displace current gas
consumption.
• In other industries, gas consumption may increase where it is part of a transition to lower emissions
technologies, as cited above.
• Of note, in the “step change” scenarios anticipated by industry, gas blending or partial substitution with
alternative inputs such as biomethane or hydrogen is a common thematic.
• MA therefore supports and advocates co-investment in R&D and incentives to scale such “bridge”
technologies that can be applied in manufacturing.
• The figure below is a simplified demonstration and examples of this “stepchange” approach.

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Level 1, The Realm 18 National Cct Barton ACT 2600
S PECIAL RE PO R T Low EmissionsEManufacturing:
ben@manufacturingaustralia.com.au
Australia’s Opportunities
P +61 2 6198 3285

Figure 1
Steps to decarbonise the Australian Manufacturing Industry

ENHANCE

• Maintaining and BRIDGE
strengthening existing actions • Meeting market demand and BREAKTHROUGH
to decarbonise manufacturing maintaining competitiveness
processes using existing • Developing and investing in
through applying and scaling
infrastructure new decarbonisation
new clean technologies
technologies requiring major
• Identifying most prospective • Delivering technically and breakthroughs globally in
technologies and pathways to economically feasible technology or scale
deliver zero emissions emissions reduction
• Investing for a clean and
• Setting ambitious but Examples competitive Australian
achievable targets
• Partially replacing hydrogen manufacturing future
Examples from natural gas with green Examples
Action by • Reducing cement needed in hydrogen in ammonia
• Providing high volumes of
industry concrete using supplementary production
reliable, internationally
cementitious materials • Applying inert anodes for competitive renewable energy
(SCMs) aluminium smelting to for 24/7 aluminium smelting
• Capturing CO2 from eliminate Scope 1 emissions
• Proving technical and
ammonia production for use • Developing mechanical commercial viability of scale
in food & beverage vapour compression to green hydrogen production
manufacturing replace fossil fuels used in
• Proving technical and
• Reducing energy consumption bauxite digestion for alumina
commercial viability of direct
in steel production by utilising production
reduced iron (DRI) using green
waste gases
hydrogen for steel production

• Consistent and stable long • Desire and action to maintain
term emissions reduction Emissions-Intensive and domestic manufacturing
policy Trade-Exposed (EITE) capability
• Reliable and globally cost manufacturing • Financial support for
competitive energy inputs • Financial support to reduce Research & Development
Enablement cost and scale emission
• Long term energy, hydrogen • Internationally competitive
required reduction technologies
and CCUS infrastructure environment for long-term
planning and provision • Policies and incentives to investment
stimulate demand for low
carbon products (including
information & education and
standards)

Price assumptions are not globally competitive: •
• Page 34 assumes government’s anchor prices of ~$12/Gj remain globally relevant and appropriate,
presumably because these are linked to JKM.
• Greater weight should be afforded to benchmarking against other “gas rich” nations, such as the US, Canada
and Qatar. The exhibit below compares natural gas price movements in the USA with Eastern Australian
prices, and the correlation with manufacturing employment.
• Further,must
IV. Australia the discussion
convert paper largely
its clean frames the objectives of the strategy as being to ensure “sufficient –
energy
but not excess – supply of gas to meet demand.”•
advantage into a clean manufacturing
• Such framing will not ease high domestic prices. MA contends that the objective should be to oversupply
advantage
domestic markets such that prices return to globally competitive levels.

•

•

manufacturing

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12 L.E.K. Consulting
Level 1, The Realm 18 National Cct Barton ACT 2600
E ben@manufacturingaustralia.com.au
P +61 2 6198 3285

Figure 2
Electricity and natural gas price comparison and manufacturing employment between Australia and the
United States* (2008-2020)

Electricity prices* (manufacturing) Natural gas prices* (manufacturing) Manufacturing employment,
(2008-2020) seasonally adjusted
Index (2008=100) Index (2008=100) (2010-2019)
Index (2010=100)

250 200 125
173 111
197
200 100 93
150

150 75
100
96
100 50

50 34
50 25

0 0 0
2008 10 12 14 16 18 20 2008 10 12 14 16 18 20 2010 12 14 16 18 20

United States Australia

Source: Australian Bureau of Statistics, 6427.0: Producer Price Indexes, Input to the manufacturing industries; US Energy Information

New gas supply should be reserved:
• Consistent with input to previous reviews of the Australian gas market, MA recommends that new gas
13 L.E.K. Consulting
developments should be either wholly (as per the QLD “Australian Market Condition”) or partially (as per
WA DOMGAS) reserved for domestic customers.
• Further, governments should consider alternatives to requiring physical infrastructure (eg pipelines) to be
built in order to facilitate such domestic supply – a more liquid and transparent hub model should be able to
effect these outcomes via swaps if required.

Carbon Capture and Storage:
• For some manufacturing industries, CCS is one of several abatements pathways while for others, notably
including cement and lime production, CCS is likely to be a key pathway.
• MA supports efforts to develop a domestic CCS industry in Australia that is centred around “hubs” that
enable some manufacturing industries that are relatively small scale by global standards, to leverage
economies of scale from CCS in other, larger, industries.
• Further, there is a need to accelerate delivery of CCS compression, hub transport (<100km) and storage
under $20/t CO2e (noting that many manufacturing sites are located more than 100km from a hub and costs
of capture are additional, significant and uncertain).

Thank-you for the opportunity to comment on the Future Gas Strategy: Consultation Paper

Yours Faithfully,

Manufacturing Australia

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