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Gas price could claim Incitec plant

Industrial chemicals manufacturer Incitec Pivot says it will have to close its Brisbane fertiliser plant, if forecast gas prices are in place when its major supply contract comes up for renewal next year.

The ASX-listed multinational outlined its annual results on Tuesday, announcing a $318.7 million net profit after tax, up 8% year-on-year. Earnings were up 17% to $501.2 million.

But the bigger storyline coming from the company’s annual report was the potential closure of its Gibson Island plant, which sits on the southern bank of the Brisbane River in the city’s eastern suburbs.

“The current gas supply arrangement for Gibson Island will cease on 30 September 2018,” the company said in its report. “If economically viable gas cannot be secured for the period commencing 1 October 2018, it is likely the facility will cease manufacturing operations.”

The company says earnings for its fertilisers business will continue to be dependent on the A$/US$ exchange rate, and global fertiliser prices, which have been soft lately.

The Gibson Island gas supply deal is for 15 petajoules of gas a year (i.e. 15 million gigajoules). According to several sources, gas prices in Queensland have been around $8 per gigajoule recently, compared to $3-$4 averages over the last few years.

The ACCC has said gas producers should have a set price for domestic Queensland buyers of roughly $5.80, and Incitec Pivot has indicated it could keep Gibson Island open if it could secure gas at this price.

But East Coast gas producers say the ACCC’s price is too low to justify new gas exploration, so it seems unlikely any of them would sign a deal as major as Gibson Island’s for anything close to what Incitec Pivot can afford.

“There are days we’re optimistic and there are days we are not,” new Incitec chief executive Jeanne Johns reportedly told The Australian. 450 people are employed at Gibson Island.

“We’d love nothing more [than] to keep it open and the 450 jobs we have there, and that’s what we’d all hope, but we’re actually employed by our shareholders to look after their interests as well.”

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