Incitec Pivot boss says soaring gas prices show the market is broken

Incitec Pivot boss James Fazzino says the energy crisis is a “gas train wreck” unfolding in front of our eyes.

Prime Minister Malcolm Turnbull, second right, is escorted by Incitec Pivot Fertilisers chief James Fazzino, second left, during a visit to an Incitec facility in Brisbane in April. (Picture: AAP)

One of Australia’s biggest industrial gas users has labelled the nation’s forecast gas shortfall as an unfolding “train wreck” and has thrown his support behind government intervention into the “broken” market as a short-term solution.

Outgoing Incitec Pivot chief executive James Fazzino told Sky News Business he has been warning for several years about the looming crisis as more gas is sent offshore.

“Unfortunately the train’s at the station and we’re seeing the train wreck happening before our eyes,” he told the Ticky program on Sky News Business.

“We need more gas producers and we need more gas”.

“It’s not until you cause an excess in market that you’re going to see prices go down.”

The Melbourne-headquartered Incitec manufactures, markets and distributes industrial chemicals, fertilisers and mining explosives. Mr Fazzino, who is scheduled to retire in November, is also the chairman of Manufacturing Australia.

His comments come on the heels of a forecast by the national energy regulator that Australians could be exposed to energy shortages and price spikes from a gas shortfall next year, warning the shortage could be up to 107 petajoules of gas, equivalent to about 17 per cent of the demand it expects from households, businesses and power stations.

Mr Fazzino said that soaring domestic prices for gas while the international price is low, shows that the market is broken.

However, he threw support behind Prime Minister Malcolm Turnbull and Energy Minister Josh Frydenberg who he said were “clearly showing leadership on this issue”. He also welcomed the intervention of ACCC chairman Rodd Sims.

The competition regulator also warned of a shortage in a separate report also released this week to guide the government decision on the export controls.

The ACCC said domestic users in the southern parts of the country were facing very high gas prices, largely as a result of the expected supply shortfall and lack of competition between the southern gas suppliers.

“The short term solution is we intervene but the long term solution is more gas and more gas suppliers,” Mr Fazzino said.

Compared to the United States, Mr Fazzino said Australia has the same “natural endowment” of coal, wind and solar.

“What we need to do, is we need to resolve the issues in energy and electricity and gas because the underpinning thing that Australia’s got is we’ve got that same natural endowment that the US has,” he said.

But while gas in the United States has dramatically fallen, Australia has seen a significant price hike.

Mr Turnbull said on Monday morning he would not allow the gas shortfall to continue or power bills to rise further.

Mr Turnbull said the government would commit to ensuring there was no domestic gas shortfall in 2018, effectively indicating the “gas trigger” of diverting exports to the domestic market will be pulled, if gas companies have not addressed the shortfall through other means.

The Australian Energy Market Operator backed the Prime Minister’s plan to divert gas exports to the local market, warning the shortage next year could be up to 107 petajoules of gas, equivalent to about 17 per cent of the demand it expects from households, businesses and power stations.