Gas rise to hurt mill

Thursday, November 6, 2014

Originally published at: 

Australian Paper's Maryvale Mill could be hit with an extra $30 million in annual operational costs if projected gas price increases eventuate over the next three years.

In a desperate lobbying push pleading for state and federal governments to adopt a "common sense approach" to gas pricing policy, Australia Paper has warned its Maryvale operation could be "decimated" without intervention.

As the state's biggest industrial user of natural gas, the company predicts it will face between $30 and 45 million in annual cost increases by January 2017 - more than a doubling of its current gas bill.

"There is absolutely zero opportunity for us to recover that in the marketplace, so this will be a direct hit to our bottom line," Australian Paper energy and regulatory manager Brian Green said.

The company said the governmental approval to construct three major natural gas export facilities in Queensland was already placing significant constraints on Victoria's gas volumes, with Bass Strait producers moving to capitalise on the booming northern export opportunity.

"We are desperately calling for sanity here. It was never intended that gas would flow north to Queensland, but that is what is happening - Bass Strait producers see this as an opportunity to gain windfall profit," Mr Green said.

"But that's going to decimate local manufacturing and take away local gas demand and its short-sighted policy and not in best interest of Australia."

Mr Green said despite extensive lobbying by the company at state and federal levels, it had fallen on unsympathetic ears.

"Governments are reluctant to accept this is a major problem, and are desperately hoping the market will sort itself out," Mr Green said.

"The ideology of government is not to interfere with market and be light handed with regulation, but we would say by virtue of approval of the three LNG platforms they have interfered significantly with the market."

"The projected gas cost increases would lead to job losses and a reduction in the size of our operations, significantly damaging the regional communities in which we operate."

However, Energy and Resources Minister Russell Northe said it was still unknown what the "true effect" of Queensland gas developments would have on prices, especially as more gas development projects came on board.

"Victoria has estimated gas reserves for the next 20 to 30 years and will not be as vulnerable to gas price increases as other states," Mr Northe said.

"However the Victorian Government recognises that the eastern gas market is expanding rapidly and is advocating for joint government action on this issue through Council of Australian Governments."

Mr Northe said he had commissioned a body of work to be undertaken by the Australian Energy Market Commission to review pipeline capacity, pipeline access, investment, planning and risk management of the Victorian declared wholesale gas market to ensure this activity was being delivered as efficiently and cost effectively as possible.