Imminent Qenos closure has massive implications for industry

“The decision to place Qenos into administration reflects the erosion of key pillars of Australia’s industrial landscape – and risks causing much more. Federal and State governments have begun to refocus on industry strategy just as the consequences of many years of inattention and lightweight policy are being felt,” Innes Willox, Chief Executive of national employer association Ai Group, said today.

“The causes and consequences of Qenos’s closure are wide. A whole range of industrial and commercial products depends on the flow of resources and materials between oil and gas producers, refiners, chemicals businesses like Qenos, intermediate manufacturers of products like food and beverage packaging, and downstream users like food processors. Any house in Australia will have multiple polyethylene products in it.

“The closure of the ExxonMobil refinery in Victoria in 2021, driven by age and the pressures of the pandemic, dealt a blow to Qenos and many other businesses in the industrial ecosystem. A major plant outage added to the problems. But most of all, the long-term rise in natural gas prices eroded Qenos’s competitiveness and its prospects. Prices rose over the past decade because of the take-off of LNG exports, the erosion of Southern gas production, and the lack of adequate planning to manage these long-foreseen developments.

“The current Federal Government intervened in gas markets starting in 2022 to respond to the extraordinary price surge that followed the invasion of Ukraine. Their Mandatory Gas Code of Conduct is forceful where previous governments’ support for gas users was merely rhetorical. But if the Code succeeds in its goals – and it is still too early to say that it will – gas prices will still be three times their pre-LNG average.

“Qenos is surely not the only industrial gas user to be unviable at these prices; and more businesses may shrink or collapse without the local product supply and demand for goods and services that Qenos provided. Full reliance on imported inputs will mean some businesses have no compelling reason to manufacture locally. Circular economy projects to more fully recycle plastics are just getting going and cannot yet fill the gap that Qenos will leave. Chaotic disruption of sovereign supply chains is a risk.

“Meanwhile for those gas users who can manage under higher prices, the prospect of supply shortfalls looms. The loss of Qenos’s demand pushes those fears back only slightly, with production in the Bass Strait rapidly declining. There is not yet a convincing plan to stave off the shortfall on the supply or demand sides.

“Natural gas use will decline over time for economic and emissions reasons, but that must be by adopting better solutions to our needs, rather than failing to meet them. The States and the Federal Government need to get serious about navigating our gas transition. Businesses across the country use gas today for process heat or feedstock. That will not change rapidly or without effort. And the economics of alternatives are still often a struggle.

“There is more pain to come, and it will not be confined to the 700 workers directly impacted by the Qenos closure. We need a coordinated response to the ripples of this closure, especially in the chemicals and packaging sectors; and a convincing long-term plan for reliable and affordable industrial energy. Qenos’s facilities were in Victoria and New South Wales, but the risks are national. All the States and the Commonwealth need to work together to halt further industrial decline,” Mr Willox said.

/Public Release. View in full here.