East coast gas measures 'not working': Incitec Pivot CEO
Summary: The measures taken to address soaring gas prices on the east coast simply haven't worked and the government needs to take "more serious" action to prevent driving manufacturing jobs offshore, according to Incitec Pivot chief executive Jeanne Johns, signalling support for curbing Queensland LNG exports.....
In forceful comments to the Financial Review's National Energy Summit, Ms Johns took issue with the whole set-up of the east coast market where domestic customers are being forced to match the alternative best price of the three Queensland LNG export ventures in order to get their hands on gas.
"That is not how most gas markets work," Ms Johns said.
"I do think that if there is not more natural gas forced to stay home I think it will drive many manufacturing jobs offshore, and I think it is an unnecessary tax on the Australian consumers."
Jeanne Johns, managing director and CEO at Incitec Pivot, speaks at the AFR National Energy Summit. Jessica Hromas
The fertiliser maker's Gibson Island plant in Queensland was saved from the brink of closure after its gas supply contract ran out at the end of September, only managing to secure a new contract at a much higher price. The extra $50 million in costs will wipe out profits at the plant for the next 12 months.
While the government has put in place powers to curb exports from Queensland's three LNG ventures, led by Santos, Origin Energy and Shell, it hasn't triggered the controls, instead relying on voluntary agreements with the projects to keep the local market well supplied. Federal resources minister Matt Canavan, who will address the summit on Thursday, has claimed success because prices have tempered from extreme levels around $20 a gigajoule early last year. But Ms Johns said if the measures were working Incitec Pivot should have received more offers in a tender process it went through recently to secure more gas and prices should be lower.
"I don't think the voluntary measures have worked. I hope they do work, but I think if the voluntary measures don't work then the government needs to take something more serious." she said.
Ms Johns was backed up by Louis Vega, president of Dow Chemical in Australia, who said "we are taking pieces of a very complex problem and calling it a victory when we have a very small movement [in prices], not even near to where it should be."
Mr Vega said Australia needs to take a "holistic" approach, re-examining "everything from extraction and permitting and use-it-or-lose-it type models that are available in other countries all the way to storage and strategic reserves all the way to open access pipelines" so that marginal supply projects can deliuver gas to any customer across the country.
Dow favours the construction of a long-distance pipeline to link up plentiful sources of gas off the north-west coast with east coast buyers.
The comments came ahead of an address by Santos's head of commercial, Phil Byrne, to the summit on Thursday, who will emphasise the importance of supplying both domestic and export markets.
"The LNG and domestic gas industries are simply too important to Australia for us not to succeed in developing them both," Mr Byrne will say.
He says the reason Australian domestic prices are higher are than the $3-$4/GJ historical prices are because the cost of new supply is higher, while Bass Strait is in decline and the east coast market is linked to the huge international market. He notes that Santos has recently completed direct sales deals with several big industrial players on the east coast, including Visy, New Century Resources and Brickworks.
LNG exporters make the argument that their vast coal seam gas reserves in Queensland wouldn't have been developed without the scale and lucrative prices offered by exports. They say their multi-year LNG sales contracts with buyers in Asia are sacrosanct, with any deviation escalating sovereign risk.
But Ms Johns sees it differently: "I have been working internationally my whole life and I have to say Australia is the exception to the rule," she said' "I don't see the sovereign risk by making sure you have enough of your own energy to supply your own energy needs, I would assert it is sovereign risk to actually export that and leave a hole in your energy needs."
She said the Queensland LNG ventures are "disrupting the logical transition plan" for Australia to use gas as a "transition fuel" towards lower carbon energy supply.
"That sort of seems like the tail wagging the dog here," she said.