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Manufacturing Australia at odds with Origin, Santos, Woodside

Manufacturing Australia (MA) is a coalition of some of Australia’s largest manufacturing companies, including Amcor (ASX: AMC), Bluescope Steel (ASX: BSL) and Incitec Pivot (ASX: IPL). Its aim is to speak out on public policy and economic issues. This week the lobby group launched a national campaign on one of its key policy issues titled “Gas for Jobs: A roadmap for domestic gas security”.

MA believes that unrestricted exports of gas from Australia’s east coast could threaten up to 200,000 manufacturing jobs. The problem, according to MA, is that from 2015 the development of gas export facilities on the east coast of Australia mean exports will surge and that there are “no safeguards in place to ensure reliable and affordable gas remains available for domestic industry.” It’s a worrying outlook, but unsurprisingly, one which the major energy producers disagree with.

Ms Sue Morphet currently holds the position of Chair of Manufacturing Australia and previously was the CEO at clothing manufacturer Pacific Brands (ASX: PBG), which provided her with significant experience and understanding of the issues which face domestic manufacturers. Ms Morphet makes the point that “Australians will now pay the world’s highest gas prices despite having one of the world’s largest supplies.”

As part of the campaign release Ms Morphet has been busy discussing suggested policy initiatives that MA would like to see state and federal governments adopt. The most controversial and important of these is that “a percentage of production from all new gas projects and expansions should be allocated to domestic use, along with the establishment of dedicated gas tenements.”

While any gas restriction policies, if they are introduced, will most likely target new production rather than established production, there is no way to know for sure. Regardless, in view of recent events in both the USA and Western Australia,the risk-reward profiles of future gas projects have altered, and no doubt Origin Energy (ASX: ORG) and Santos (ASX: STO), with their significant east coast operations, are particularly wary. Meanwhile, Woodside Petroleum (ASX: WPL), which has already been exposed to the Western Australian government’s policy changes, is likely taking a more measured approach to future gas projects .

To counter the push from MA, members of the natural gas industry via the Australian Petroleum Production and Exploration Association have launched an advertising campaign promoting the gas industry and warning of the consequences if projects fail.

Foolish takeaway

Recent events in the policy area of Fringe Benefits Taxes and the subsequent share price crash of McMillan Shakespeare (ASX: MMS) have reminded investors of the dangers of government policy changes. Energy policy will be an increasingly hot topic, so investors in the energy sector would be advised to demand a larger margin of safety than perhaps they have in the past.

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Motley Fool contributor Tim McArthur owns shares in Pacific Brands and Origin Energy.

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