Gas ground win offers glimmer of hope for Incitec Pivot’s Gibson Island fertiliser plant

Incitec Pivot sees a pathway to affordable energy for its Gibson Island plant after its partner makes gas ground gains.

Prime Minister Malcolm tours the Incitec Pivot facility on Gibson Island with then chief executive James Fazzino. (Pictures: Jack Tran)

Incitec Pivot’s Gibson Island fertiliser plant at Brisbane, set to become loss-making when old gas contracts expire this year, has been given a glimmer of hope after Incitec partner Central Petroleum won ground in Queensland’s latest release of gas ground specifically to be developed for domestic markets.

Queensland Resources Minister Anthony Lynham announced today at the Australian Domestic Gas Outlook conference in Sydney that Central (CTP) and Armour Energy (AJQ) had been awarded ground.

Gibson Island, which employs 500 people and, Incitec (IPL) says, another 1,500 indirectly, will close at the end of the year if it cannot secure gas priced well below current rates.

“While the economics for the supply of gas on both an interim and longer term basis remain challenging, the award of this acreage to Central Petroleum by the Queensland Government creates a pathway for IPL to work with Central to secure an affordable source of gas for our Gibson Island plant,” Incitec chief Jeanne Johns said.

The award marks a return to Queensland coal seam gas exploration for Central Petroleum chief Richard Cottee, who founded Queensland Gas Company and ran it until it was overtaken by BG Group, who built the Queensland Curtis LNG plant at Gladstone.

Incitec and Central have a memorandum of understanding to negotiate terms of development of the ground with a view to supplying some of the gas to Gibson Island.

“Along with the development of the acreage, Incitec will pursue commercial terms with Central Petroleum for the supply of interim gas to Gibson Island from cessation of the current gas contracts until at least the end of 2019, by which time it is expected that the appraisal works on the acreage will have been completed,” incitec said.

As part of these arrangements, it is contemplated that IPL may provide up to $20 million of funding to support appraisal and drilling activities in relation to the acreage. If the reserves are proven following appraisal and drilling activities, it is anticipated that development of the acreage will yield gas in 2022.”

However, Gibson Island is still challenged. Former Incitec Pivot chief James Fazzino last year indicated that gas prices of about $6 a gigajoule would be needed to save the plant. This is roughly double the current contract price at the plant but well below new contract prices of about $9. The gas industry and analysts say new coal seam gas fields cannot be developed cheaply enough to supply gas at $6.