Gas solution ignored as taxpayers forced to bail out smelter

January 20th, 2017

The Federal and State Government bail-out of the Alcoa aluminium smelter is great news for the 600 employees and for the far-western Victorian town of Portland.

But it is $240 million worth of bad news for taxpayers, who are footing the ongoing bill to keep the plant afloat.

The galling thing is, there is a commercial solution available, utilising natural gas, but the Victorian Government won’t allow it because it has an illogical blanket ban on gas development.

There is an irony at play here as icy as the winter winds which blow off the Southern Ocean onto Victoria’s rugged, undeveloped and generally tourist ignored  far-western coastline.

Australian taxpayers are subsidising an American manufacturer, Alcoa, while Australian manufacturers (such as Incitec Pivot) are relocating away from Australia to the USA, lured by low-cost, secure gas supply delivered by the US shale-gas boom.

And in doing so, they are supporting the use of coal-fired electricity, inefficiently transported hundreds of kilometres – a much worse case environmentally than using natural gas produced much nearer to the smelter.

Alcoa suggested establishing its own gas-fired power plant, but this idea could not get off the ground.  There is a ban, you see.  And Federal funds for new energy projects are only for renewables, not natural gas, say the Greens.

So we have the situation where ideology and politics have completely trumped sensible, practical policy making.

A victim of this ludicrous situation is Australia’s oldest oil and gas producer, Lakes Oil.  It is  prohibited from implementing its properly assessed and licensed exploration and development rights in western Victoria, despite having customers at the ready.  Taxpayers may well lose out in this instance too, as Lakes is suing the Government for stopping it from exercising its legal rights (and proceeding with locally-supported plans which would create jobs and boost local commerce).

Precedent has been set in NSW, where a properly licensed operator won its case after the Government, for political reasons, revoked its license.  Taxpayers had to foot the $25 million bill.

Then there’s Australian manufacturer Incitec Pivot, which decided to build its plant close to a natural gas supply in Louisiana instead of in Victoria, because it had no confidence in future price and supply certainty here.  That was four years ago.  At the same time, and since, taxpayers have been  subsidising Alcoa, an American manufacturing business in Victoria which can’t survive without low cost energy.

The Alcoa plant had low-cost energy in the past.  All industry, small business and consumers in Victoria have had extremely low-priced gas for decades, courtesy of the development of Bass Strait oil and gas dating back to the 1960s.

But not any more.  The Bass Strait fields are starting to dwindle; the cost of extraction is rising and the quality of the product is starting to slip.

This has serious implications for Victoria and NSW – the nation’s manufacturing base.  For several years, the industry warned of a looming supply/price crunch.  It has now arrived.

That is why the current discussion about energy policy is much more than an ideological debate about global environmental issues.

Manufacturers in Australia are staring down the barrel of seriously damaging supply uncertainty and price hikes.

These are not small companies looking for a break.  They are entrenched, major employers of the size of BHP, OzMinerals, BlueScope Steel, Brickworks and CSR.

As the Australian Workers Union has said, hundreds of thousands of manufacturing jobs are at risk.

Energy and Environment Minister Josh Frydenberg is right:  It is “just not good enough” for States to obstruct good national energy policy and risk so many jobs because of political considerations pushed upon them by environmental activism linked to The Greens.

It is time for a bit more political courage.

 

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