‘Absolutely unreasonable’ gas prices need federal intervention: Orica’s Sanjeev Gandhi

Federal intervention into gas pricing is critically needed to deal with ‘absolutely unreasonable’ spot gas prices, says Orica chief Sanjeev Gandhi.

Orica's Yarwun manufacturing facility in Queensland. Picture: Orica

Federal intervention into gas pricing is urgently needed to help deal with “absolutely unreasonable” spot gas prices, Orica managing director Sanjeev Gandhi says.

Mr Gandhi said discussions between manufacturers, the government and producers over pricing had been “constructive”, but industry now needed an outcome.

“I really leave it now to politics and to the gas industry to decide what is reasonable,” he said.

My expectation as a major consumer of natural gas in Australia is that we are not unfairly disadvantaged versus the rest of the world.”

Mr Gandhi would not be drawn on Orica’s preferred model for gas price intervention, but said an urgent solution to “absolutely unreasonable” spot gas prices was needed. Mr Gandhi said any mechanism adopted by the government should focus on increasing the long term flow of natural gas into the domestic market.

“It‘s a combination of getting more supply into the market, especially for Australian industry, and then trying to mitigate these peaks in spot pricing,” he said.

“We’d like to have a sustainable long term pricing with a lot of visibility, so that we can also plan our own investment of capital into this country.”

Resources Minister Madeleine King has promised to deliver Labor’s response to the energy crisis by Christmas, but Australian Energy Regulator chair Clare Savage told a meeting of energy ministers on October 28 that any gas and coal cap would need to be implemented “within weeks”, given major users and buyers were locking in purchase agreements for the next year amid expectations prices will surge in 2023.

Mr Gandhi said the crisis in Europe due to Russia’s war on Ukraine meant Australia’s competitive position had strengthened compared to some areas of the world, despite high domestic energy prices, but said a long-term solution was still needed.

“We are not worse off versus some of our peers in the regions like Europe, they are really going through a significant existential crisis at the moment, given their dependency on Russia and the massive interruptions they‘re facing,” he said. “But you do have pockets in the world where energy prices and gas prices are significantly better for domestic industry and we, on the other hand, are competing with exports to Asia, which is always a challenge for manufacturing in Australia.”

Orica will pay a 22c a share unfranked dividend after booking a $60.1m net profit for the year, after the company’s revenue rose 36 per cent to $7.1bn on the back of strong demand for its products.

The explosives manufacturer released its full-year results on Wednesday, saying sales volumes of ammonium nitrate were up 4 per cent on the previous year, with sales of electronic blasting systems up 10 per cent as mining activity increased across the globe.

The company booked underlying net profits of $317m, and a $60.1m statutory profit after booking $167.9m in impairments – including $90m on the exit from its Russian business.

Orica said it had sold its Russian business, JSC Orica CIS, for $13m to an unnamed party in early September,

Mr Gandhi said the full-year result – a reversal of the previous year’s $174m net loss – was a sign of “significant progress” at the company, but warned the inflationary environment still posed significant risks looking forward.

“Inflationary pressures and higher energy costs, as well as supply chain dislocations, will remain an ongoing challenge in the 2023 financial year,” the company said.

Orica shares closed up 7.1 per cent, or $1, at $15.09.

Originally published as ‘Absolutely unreasonable’ gas prices need federal intervention: Orica’s Sanjeev Gandhi