Orica’s Sanjeev Gandhi and BlueScope’s David Fallu want Labor to solve east coast gas shortfall

Concerns are growing among leading manufacturers over a gas shortfall on the east coast, prompting executives to call on re-elected Labor for a solution to an escalating problem.

BlueScope CFO David Fallu at the Macquarie Australia Conference.

Major manufacturers Orica and BlueScope have escalated their fears of a possible gas shortfall on Australia’s east coast and urged Labor to reconsider its policies to ensure enough supplies are available for domestic users.

Chemicals and explosives maker Orica said a series of warnings from officials over potential gas shortages during peak conditions had underscored the challenge for domestic heavy industry which relies on secure supply to power manufacturing operations.

Despite the formality of those warnings, the gas buyers are unconvinced there is a credible policy safety net in place.

“I am concerned over the shortfall of gas and I am concerned over the timing of availability of gas,” Orica chief executive Sanjeev Gandhi said after delivering its half-year result.

“We need uninterrupted supply so we need gas 24/7 and 365 days because my manufacturing sites work all the time and never stop. So any interruption from shortages, even if there are temporary shortages, leads to me shutting down my factories and high costs, safety issues and interruptions of supply chains. So that’s a very, very risky proposition.”

Sanjeev Gandhi, managing director of Orica. Picture: Ian Waldie/Bloomberg

The Albanese government in March was forced to strike an emergency deal for gas volumes this winter after the competition regulator issued shock figures warning a shortfall of gas supplies for southern states had doubled from last year.

Australia’s largest steelmaker, BlueScope, also relies on gas for its manufacturing operations and said it was a fragile situation.

“I think the supply equation on the east coast is a challenge and continues to be a challenge and it absolutely needs to be addressed,” BlueScope chief financial officer David Fallu told The Australian on the sidelines of the Macquarie Australia Conference.

“There needs to be a targeted approach to how policy can support industry.”

BlueScope had backed Peter Dutton’s election plan to bring down gas prices through a reservation scheme and said the concept of allocating supplies specifically for local use should be reconsidered by politicians.

Australia’s east coast gas market has been crimped in the past few years due to Queensland LNG exports, onshore development restrictions, falling Bass Strait production, and the increasing cost of bringing new domestic supplies to market.

Labor last year pledged gas will be a key energy source “through to 2050 and beyond” and play a critical role in helping Australia meet its net zero target while providing cheap and reliable power. The strategy includes the examination of mechanisms that will force energy companies into more swiftly developing gas reserves.

Prime Minister Anthony Albanese’s Made in Australia policy designed to reboot local manufacturing “was a wonderful strategy”, according to the Orica boss, but now needs a strong energy security component to ensure companies can gain access to gas.

“You need to create the ground rules so manufacturing survives in this country. And now is the opportunity. So the majority government can define and push through policy, they will get the support that they need for reform,” said Mr Gandhi.

“And then it helps industry with productivity and costs and it enables us to grow manufacturing in this country.”

Orica delivered a strong interim result on Thursday with its shares soaring 7.4 per cent to $18.01 and analysts hailing its “solid Australia, Pacific and Asia execution” which offset softness in the North American market.

RBC Capital Markets analyst Owen Birrell said the group’s 34 per cent annual jump in earnings before interest and tax to $472m was 13 per cent higher than its own estimates and a 5 per cent increase on consensus expectations of a $448m result.

A 40 per cent increase in underlying net profit to $251m was 21 per cent higher than RBC’s forecast and 10 per cent higher than consensus expectations of $229m.

The interim dividend of 25c per share is also higher than RBC Capital’s 21c estimate and the wider market’s 23c forecast.

Broker Jefferies Australia said a re-rating of the stock would be supported by the buyback and strong earnings growth outlook over the next few years.

Orica has been keeping a close watch for opportunities spanning both the US mining industry and its manufacturing base under President Donald Trump.

The company, which counts the US as its second largest market, has previously said business needed to strap in given uncertainty over the next moves by Washington as nations seek exemptions from the ongoing trade war.