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Incitec Pivot CEO steps up push for cheaper gas amid oil market rout

Heavy gas users, such as manufacturers in Victoria in New South Wales that use gas as a feedstock, have been struggling with the surge in contracted gas prices in recent years. Some firms, including Dow Chemical, have cited rising gas prices as one of the reasons for closing their plants.

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Now, as coronavirus lockdowns cause energy prices to fall, business leaders are voicing frustration that gas giants have not dropped their long-term contract prices closer to spot prices of less than $5 a gigajoule in the south-eastern states or the Asian LNG cargo spot prices of less than $2.50 per million British thermal units.

Industry figures told The Age and The Sydney Morning Herald gas prices being offered on long-term contracts remained between $8 and $9 a gigajoule.

Ms Johns said 95.7 per cent of domestic gas sold on the east coast was under long-term contracts.

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“Accordingly, price reductions for spot gas mean very little to Australian businesses and households,” she said.

“But if the LNG price is going to be low for the next four years, this lower price should inevitably be reflected in more competitively priced long-term contract offers for domestic gas.”

The Australian Petroleum Production and Exploration Association (APPEA), the industry group for gas producers, said delivering gas to customers like large manufacturers involved other costs, including transport and retailing, that were not included in the spot price.

The group’s chief executive, Andrew McConville, said the right price for gas was the “price agreed to by participants in a competitive market”.

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“It costs more than $6 per gigajoule to produce gas from existing fields in eastern Australia and up to $8.25 per gigajoule in new projects, before transport, distribution and other commercial costs,” he said.

“The notion that any industry can survive selling its product lower than its cost of production is clearly out of step.”

The push to drive down gas prices in Australia in order to boost the manufacturing sector has been gaining momentum in recent weeks as the Morrison government laid out goals for a “gas-led” economic recovery from the coronavirus crisis.

Led by former Fortescue Metals chief executive Nev Power, the national COVID-19 co-ordination committee is considering a suite of options to address a looming gas supply shortage in the southern states and keep prices under $7 a gigajoule and potentially as low as $4 a gigajoule.

The focus has prompted concerns from gas producers who argue $4 a gigajoule gas is unrealistic and angered environmentalists who say gas is a heavy source of emissions and its future role should be limited under goals to keep global warming well below 2 degrees in line with the Paris climate agreement.

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