Hard on the heels of the surge in electricity prices, the first wave of the fallout from a spike in domestic gas prices is emerging with jobs in the manufacturing sector in the firing line.
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The big lift in demand for gas from power generators on the back of the hot weather through January and February has pushed the spot price well above $12 a gigajoule in the wholesale market, forcing large gas users to reassess whether they can stay in business.
"The next energy train wreck is the east coast gas market," said David Rylah, the pricing and trading director at Energy Action, a specialist energy advisory and trader. "Depending on when a customer's contract expires, it has either arrived at the station or is only two stops – six to 12 months – away.
"For those gas users who have some pricing power, they may be able to pass on cost increases but for those who don't and are significant gas users, there will be a "cost crunch" after about 3-4 months of the new costs flowing the business. Those with a large electricity exposure it will be a double hit."
Energy Action's Rylah warned that the fallout will work its way down from the very large gas users to residential tariffs which are reset on an annual basis.
Jobs in a range of industries which are large users of energy – from disposable packaging through to food processing – are warning of a threat to jobs as the spike in the gas price bites.
"We are considering stopping manufacturing on the back of the gas price rise," the chief executive of one company said, who did not wish to be identified. "We're a medium-sized maker and gas is a key input. It is not sustainable for us to continue manufacturing."
Customers have been advised that without price rises of around 20 per cent to offset the higher gas price, production could be halted with the loss of dozens of jobs since the price it pays for gas has tripled over the past few years, to around $13.50 a gigajoule, this chief executive said. Smaller industrial gas users have few options when seeking to limit surging gas prices.
"The spot price for gas has been above $10 a gigajoule regularly since the start of the year," Graeme Bethune of EnergyQuest said, due to hot weather which has driven up demand from electricity companies coupled with gas export projects in Queensland which are now hitting their straps after completing construction.
Even though only small volumes of gas are traded at the spot price, the reality is that for many smaller and midsized manufacturers, they are fully exposed to the spot price due to the modest volumes of gas they use.
Energy retailer Western Energy said it is aware of some industrial users who have been warned to expect to pay more than $22 a gigajoule for gas supplies from 2018 as the domestic supply shortage bites.
"We have manufacturers who have been quoted $19 a gigajoule for contracted gas for 2018," Western Energy's Garbis Simonian said. "Such high prices will definitely drive many well-managed companies out of business with the loss of tens of thousands of jobs.
"These jobs will go to Asia where Australian LNG [liquefied natural gas] is currently selling on the spot market at $US6 a gigajoule ($8 a gigajoule). Our customers are suffering since they will not be able to absorb these price rises. There will clearly be consequences."
