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Australian Food Processor Says Natural Gas Prices Will Force It to Close

Neil lives in Canada and writes about society and politics.
Published: June 12, 2022
The price of natural gas is going to shutter Australian food processors.
A beggar in Sydney on March 6, 2018. Natural gas is as high as $40/GJ in several parts of Australia, capped by the government after hitting as high as $440/GJ. Some food processors say they will soon have to close after receiving gas bills almost ten times higher than normal. (Image: SAEED KHAN/AFP via Getty Images)

A major food processor in Australia has said it will soon have to close its doors because the cost of natural gas is running it out of business. 

Master Butchers Co-operative CEO Jamie Higgins told state messaging outlet Australian Broadcasting Corporation in a June 9 article that “Our gas bill has gone from $135,000 a month to $900,000 a month,” describing the cost overrun as “catastrophic for us.”

Higgins told ABC that the overrun, which adds up to about $9 million annually, “would be terminal for our business” unless the situation miracuously abates. 

The Co-operative’s plant in question is located in Adelaide and is described in the article as processing “most of the by-products from South Australia’s meat industry, turning them into valuable things like tallow and pet food oil.”

INFLATION AND SOCIAL TURMOIL

These by-products cannot be sent to the landfill and are difficult to compost, it adds.

The author of the article stated, “If the company can not get affordable gas soon, it will have to shut down, which means meat and poultry processors might have to stop too.”

However, according to data from the Australian Energy Regulator, the price of natural gas in Adelaide hasn’t even doubled, increasing from $6.54 per gigajoule in 2021 to $10.79 this year.

Despite the apparent mathematical discrepancy, CEO of Food SA Catherine Sayer reiterated a similar anecdote, “We use a lot of gas to produce food and we’re really hearing that prices are sort of doubling or tenfold what they previously were and that’s having a huge impact on our industry.”

$40 a gigajoule

Data from the Australian Energy Market Operator (AEMO) shows a number of plants are running at peak or almost peak capacity, and have been over the course of the last 6 to 12 months. 

AEMO’s information also appears to show that while pipeline deliveries have increased, they remain close to what they were a year ago. And although storage levels are rapidly declining, several facilities are still above where they were 12 months prior.

In a June 7 update on the natural gas market, AEMO stated it would maintain a $40 per gigajoule cap placed on the Sydney and Victoria regions after the underlying markets skyrocketed to as high as $440. 

Data from the Australian Competition & Consumer Commission shows that natural gas prices have never been higher than $13.21 per gigajoule, a price posted in October of 2018, since 2016.

In August of 2020, LNG prices were a meagre $2.36 per gigajoule.

The ABC states that the natural gas industry says it’s already supplying extra gas to the market, but because of record flooding, a litany of cold weather, and several coal mine stoppages, electricity generators have also increased their consumption dramatically.

At the beginning of June, Australian energy retailers began informing customers that they can expect as much as a 100 percent increase in their bill starting in July.

Data from Alberta, Canada utility provider ATCO states the average house in the Province uses about 10 gigajoule of gas per month, putting 1 gigajoule into perspective as enough to heat 150 bathtubs full of water.

Meanwhile, in America

On June 10, one of the world’s largest pork processors, Smithfield Foods, announced it would eliminate operations in Vernon, California in early 2023. 

The company added it would also be shuttering all operations in both California and Arizona in the near-term future, as well as culling its herd in Utah. 

The company stated it is “taking these steps due to the escalating cost of doing business in California,” but did not elaborate further.

In a June 11 article by Wall Street Journal, the outlet described the Vernon facility as employing 1,800 people, and paraphrased the company, which is owned by a parent company in Hong Kong, as stating, “Higher taxes, utility costs and labor costs in the state compared with other areas where it operates” made the cost of doing business in California not “worth it.”

An unnamed company spokesperson was also paraphrased as stating, “In California, the cost of utilities is 3.5 times higher per head to produce pork compared with the 45 other U.S. plants Smithfield operates.”

Data from the U.S. Energy Information Administration, which only has data up until March, shows that natural gas prices in California hit $12.89 per gigajoule, up from $9.82 in March of 2021 and $7.68 in March of 2020.