BlueScope chief demands urgent action on 'broken' gas market to save industry

Australia's biggest manufacturers have warned the nation's "broken" east coast gas market could cost thousands of jobs and derail the government's Future Made in Australia policy.

In a speech to the National Press Club in Canberra today, BlueScope Steel chief executive Mark Vassella will warn Australia risks repeating the United Kingdom's industrial decline if the federal government fails to fix the gas market.

He said the UK's experience — driven by high energy costs and poor policy decisions — should serve as a "cautionary tale" for Australia.

"Australian manufacturing is at a dangerous crossroad," Mr Vassella said.

"Major change is required to fix our broken gas market and reinstate a fair domestic price.

"If we can't, we face a decline in manufacturing, similar to that which we've seen in the UK steel industry."

Industry calls for urgent reform

Mr Vassella, a member of Manufacturing Australia, is urging the federal government to adopt an east coast gas reservation policy and a $10-a-gigajoule price cap to guarantee affordable supply for domestic manufacturers.

The industry group says reserving even one-third of current east coast production would be enough to meet domestic manufacturing and residential needs, while still allowing most gas to be exported.

It says immediately reserving uncontracted gas would bring rapid relief for east coast manufacturers struggling with soaring energy costs.

"Despite our massive gas reserves, Australia has one of the highest wholesale gas prices among producer nations in the world," Mr Vassella said.

"Worse, the adoption of a pricing mechanism that is based on LNG export prices means that local gas users are effectively paying for export infrastructure they don't use.

"This is not right. It increases local gas prices and puts local gas users at a structural disadvantage."

Mr Vassella also calls for new gas supply to be brought online quickly.

Frustration in the sector is at boiling point after years of policy interventions that have failed to bring down prices.

Mr Vassella's National Press Club address will heap pressure on the federal government, which is conducting a gas market review due later this year.

Manufacturers argue that, despite gas demand across eastern Australia falling by about 20 per cent in a decade, they are still paying some of the highest prices in the world.

Last year, the average price for wholesale gas in Australia was an average $10.30 a gigajoule, compared with $2.20 in Qatar and $3 in the United States.

'No material improvement' from interventions

Manufacturing Australia — which includes executives from major gas users such as BlueScope Steel — says the federal government's $12-a-gigajoule wholesale gas cap has failed to deliver.

"The intention was for that to be a cap — it's not; it's effectively a floor," Manufacturing Australia chief executive Ben Eade told ABC News.

Mr Eade said newer offers were typically more expensive.

Mr Eade said some manufacturers were facing contract offers of up to $20 a gigajoule.

"It shouldn't be controversial to say that in a country like Australia — which is awash with gas — we should be able to supply domestic customers first, while still maintaining a thriving and globally significant export industry," he said.

"This isn't a choice between the two, but for the past 10 or 15 years, we've effectively chosen the interests of exporters over those of domestic customers."

The sector's frustration is backed by the ACCC's gas inquiry September interim report, which found recent federal interventions — including the gas market code, the heads of agreement with LNG exporters and the domestic gas security mechanism — had delivered "no material improvement" for major users.

The regulator also warned supply shortfalls could re-emerge by mid-2026 if uncontracted LNG continues to be shipped offshore.

Joshua Runciman, lead analyst for Australian gas at the Institute for Energy Economics and Financial Analysis (IEEFA), said east coast prices were high because the market was tightly linked to international LNG.

"LNG prices have increased quite a lot in recent years. This is compounded by the domestic market not having enough supply," he said.

'A crying shame'

A growing list of manufacturers has shut or scaled back operations in recent years, citing high gas prices as a key factor.

In Victoria, closures include Qenos, ExxonMobil's Altona refinery and the nation's last glass manufacturer, Oceania Glass. In Queensland, Incitec Pivot's Gibson Island fertiliser plant also closed in 2022.

Manufacturing Australia warns those are just the high-profile casualties: more than 1,400 smaller manufacturing firms have collapsed since 2022-23.

Aluminium maker Capral is among those feeling the strain. Chief executive Tony Dragicevich said high gas prices were hurting across the supply chain, pointing to Oceania Glass's closure this year.

"That business used huge amounts of gas in its furnaces — heating raw materials to more than 1,000 degrees — and it simply couldn't keep going," he said.

"Now we're importing thousands of containers of glass from China to service the window and door market, which is obviously very close to our heart because we make the aluminium framing.

He said gas now made up about 7 per cent of Capral's manufacturing costs — triple what it was five years ago.

"Five years ago, we were paying about $5 to $6 a gigajoule. We're now paying around $15. We cannot get a gas contract anywhere near $12," Mr Dragicevich said.

"Our single biggest competitor is imports and we're starting to lose market share."

'No gas, no manufacturing'

Manufacturers are united behind calls for a gas reservation scheme to guarantee supply on the east coast and stop export prices dictating domestic contracts.

In contrast, Western Australia continues to enjoy far cheaper gas thanks to its long-standing domestic reservation policy.

"We need a nationally consistent gas reservation policy — that's necessary, but it's not enough," Mr Eade said.

He said governments also needed to support investment in pipelines and storage so gas could get to where it was needed, when it was needed — helping to prevent future shortages and price spikes.

With the sector also calling for new gas supply to be brought online, IEEFA's Joshua Runciman has warned bringing on new supply was not the answer to bringing down prices.

He said just the cost of getting gas out of the ground at Santos's Narrabri gas fields in New South Wales was estimated to be about $10 a gigajoule, and even higher at about $12.70 a gigajoule from the Betaloo Basin field in the Northern Territory including transport to Victoria.

"I think the only way we get gas prices on the east coast to $10 a gigajoule is through additional supply from Queensland Gas held by the LNG exporters."

In its submission to the federal government's gas market review, IEEFA has proposed export licence contracts and, in the short term, an export tax for uncontracted gas.

A gas reservation policy is also backed by gas producers but only if it applies to new supply and does not include any price controls.

Samantha McCulloch, CEO of the Australian Energy Producers gas lobby, would not be drawn on what producers considered to be a fair price for gas.

"What we want to see is an enduring framework that actually ensures that we're bringing more supply into the domestic market," she said.

"That's the key to putting downward pressure on prices in a sustainable way."

In his National Press Club address, Mr Vassella has a blunt warning for the federal government, which has talked up a "future made in Australia".

"A future made in Australia depends on affordable gas being made available for Australian industry," he said.

"No gas, no future made in Australia."