Runaway gas prices have forced explosives and fertiliser manufacturer Incitec Pivot to opt out of Australia’s volatile east coast energy market by stitching up a deal to underpin a development in the resource-rich Bowen Basin and feed it cheaper gas.
The cost of gas has soared in Australia and around the globe. Countries have scrambled to secure alternative supplies after Russia, a major producer, launched the war in Ukraine leading to the US and Europe imposing sanctions and causing record high prices.
Jeanne Johns of Incitec Pivot.
Jeanne Johns of Incitec Pivot.Credit: Arsineh Houspian
In response to pressure from struggling consumers and manufacturers, the Albanese government introduced a slew of reforms designed to rein in energy bills, provide cost-of-living relief, curb planet-heating greenhouse gas emissions and help arrest climate change.
Incitec, faced with renegotiating a major long-term supply agreement at a time of historic high prices, has seized on an innovative soluion – stitching up a long-term gas supply agreement for its Moranbah Dyno Nobel ammonium nitrate plant in Queensland that will extend supply from the nearby Moranbah field in the Bowen Basin.
The 10-year contract was locked in at attractive rates because Incitec will help fund further development of the Moranbah field, chief executive Jeanne Johns said.
Incitec makes explosives for the mining industry and fertilisers for farmers using natural gas as a feedstock, which it then converts to ammonium nitrate, a key ingredient in both products.
However, shares in the $5.6 billion company slumped on Wednesday after it reported a fall in half-year profit to $354 million, down 8 per cent from the previous corresponding period. Investors pegged the stock back on the Australian bourse by around 8 per cent to $2.94.
Johns said severe weather in North America, more rain than usual in Australia, inflation and logistics costs contributed to the poorer result. Freezing temperatures and snow storm in the US undercut mine blasting operations and wet weather hampered Australian farmers, slowing fertiliser sales.
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“We are looking forward to a much stronger underlying second half,” Johns said.
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Gas producers Arrow Energy and AGL early last month tied up a complex deal to sell their jointly owned Moranbah project to QPM Energy who will take on the contracts to feed Incitec’s plant and to transport gas to Townsville’s power station to generate electricity for peak-demand use.
Johns said QPM would honour Incitec’s existing gas contract, which has about three years to run, before switching to a new 10-year supply agreement with a price dependent on QPM’s costs. “We’re helping support them by prepayment for gas to allow the exploration and production to occur,” she said.
“It is quite an innovative solution to keep the plnt isolated from the east coast gas market, help underpin continued exploration and development of the gas field and provide our customers with the security of supply that they need for their mining operations,” she said.
“It does underpin the competitiveness of the Moranbah asset for an additional 10 years, which is pretty unprecedented on the east coast of Australia.”
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Johns said high gas prices were a problem for everyone. “All parties have to come to the table and try and solve this tricky problem. The users all have legitimate concerns,” she said.
Like its rival Orica, the company is looking to make a final investment decision this year on supporting a partnership with Andrew Forrest’s Fortescue Future Industries to convert its Gibson Island ammonia plant into a green hydrogen facility powered by using renewable energy eletrolyser to split water into hydrogen and oxygen.
The Albanese government has allocated $2 billion to kickstart the fledgling industry, providing an incentive to narrow the large cost gap between current hydrogen market prices and the commercial production of green hydrogen, which is still at prohibitively high levels when compared with hydrogen made from fossil fuels.
“We do expect that the government would see the merits of supporting this project,” Johns said.
