Electricity shortages and pricing volatility have prompted some of Australia’s largest building-material manufacturers to consider moving production facilities overseas.
Two such industry leaders are Australia’s largest brickmaker, Brickworks, and construction materials manufacturer Boral.
Brickworks holds gas contracts with energy giant Santos Limited that are currently fixed at A$10 per gigajoule. However, due to recent inflation, market rates are now A$40 per gigajoule, which is the cap set by the Australian government.
The managing director of Brickworks, Lindsay Partridge, said that when the contracts roll over, the company would have no choice but to shut down its Australian plants and move production overseas to accommodate the new energy price.
Brickworks pays just US$3 per gigajoule in the U.S., which is less than half the rate it currently pays in Australia. The company owns Pennsylvania-based brickmaker Glen-Gery Corp.
According to Partridge, given lower energy costs in the U.S., it would be less expensive to pay for shipping costs to move products back to Australia rather than making them in the country.
Boral CEO Zlatko Todorcevski also said inflationary challenges had forced his company to look closer at energy costs and consequently cut some operations.
There are several reasons for Australia’s ‘energy crisis,’ as reported by The Dallas Express. One is a spike in international demand for natural gas stemming from sanctions against Russia after the country invaded Ukraine. Cold winter weather has also caused an increase in demand for heating fuel.
Additionally, traditional coal and gas-powered generators are in short supply in Australia, which has focused more on renewable energy.
Australia’s emphasis on developing renewable energy has led to a lack of investment in traditional forms of energy, reduced exploration for new gas fields, and decreased maintenance of existing coal-fired plants. Yet renewable energy sources have been less reliable than anticipated.
Earlier this month, the Australian Energy Market Operator (AEMO) became more involved in solving the issue by capping wholesale electricity prices, but this, in turn, lowered the availability of power.
AEMO had to order generators to produce enough electricity to avoid blackouts in critical locations such as Sydney, which hurt profits for power suppliers.
AEMO then suspended the entire National Electric Market, which provides power to Queensland, New South Wales, Australian Capital Territory, Victoria, Tasmania, and South Australia. The suspension could last for several weeks.
The Australian government is considering replacing market-oriented agencies with a focus on capacity based on metrics created by the Energy Security Board. Under the new arrangement, those supplying electricity would be paid to remain on standby with available power.