Australia’s manufacturing sector is under mounting pressure as electricity and gas prices soar, driving production costs up and reducing global competitiveness. Economists warn the trend could hasten industrial decline and hamper long-term economic productivity.
Australia’s energy crisis is not new, but recent structural decisions and policy directions are amplifying its consequences. With the shift towards renewables and the phasing out of thermal generation, energy has become less affordable and less reliable—two factors crucial to industrial survival.
Soaring Costs Squeeze Manufacturers Across the Supply Chain
According to Professor Gary Banks, former chair of the Productivity Commission, Australia’s energy strategy has moved away from market-based solutions in favour of subsidies and top-down regulation. This has led to “an increasingly dysfunctional energy system requiring far more capital to produce far less reliable power,” he told a parliamentary roundtable led by Senator Matt Canavan.
Data from the Australian Securities and Investments Commission (ASIC) shows over 1,400 manufacturing businesses have failed since 2022–23, driven in large part by energy-related cost pressures. High-profile closures include Incitec Pivot, Qenos, and Oceania Glass, once staples of Australian industry. Meanwhile, companies such as Orica and BlueScope Steel have signalled potential relocation to the United States in search of lower energy costs.
Electricity prices have risen by 181% since 2000, while natural gas prices have surged by 186%, according to IFM Investors. CBA commodities analyst Vivek Dhar noted that manufacturing still relies heavily on gas, especially outside the petroleum refining sector, further exposing it to cost volatility.
Policy Challenges Undermine Energy Security and Competitiveness
Australia’s lack of a domestic gas reservation policy on the East Coast is widely seen as a major policy gap. Since exports began from Gladstone in 2015, domestic supply has decreased by 25% despite increased production, creating an artificial shortage. East Coast gas now sells at approximately $12 per gigajoule—reportedly the highest among gas-exporting countries.
The situation could worsen if states like New South Wales and Victoria resort to importing liquefied natural gas (LNG), potentially raising prices to $20 per gigajoule. As gas remains a key marginal price setter in the electricity market, this would likely result in further hikes in power costs.
Australia is also heavily invested in a transition to renewable energy. But critics argue that without clear implementation strategies, the process risks becoming inefficient and costly. With vast reserves of coal, gas, and uranium, Australia possesses the raw resources for energy independence. Yet, it continues to face rising prices and reduced reliability—threatening not only the manufacturing base, but also broader economic resilience.
