Incitec Pivot Ltd. (IPL), Southbank, Victoria, on June 4 announced that it will continue manufacturing operations at its Gibson Island nitrogen plant at Brisbane, Queensland, after confirming a new gas supply agreement through December 2022, securing the employment of approximately 400 workers at the site. The company had warned that it would have to close the plant if a gas supply contract could not be secured at the right price (GM May 24, p. 31). Its current temporary one-year gas contract expires Dec 31, 2019.
IPL said the multiple arrangements reached with Australia Pacific LNG (APLNG) will meet the Gibson Island plant’s gas supply needs from April 1, 2020, through Dec. 31, 2022. A major turnaround, which will take place early next year at the facility and is expected to take about two months, is necessary for the plant to stay in operation through 2022, IPL said. The turnaround will cost approximately A$60 million (approximately US$41.9 million) and will be depreciated over three years. The company expects a circa A$100 million, three-year investment in major plant maintenance at the plant.
Gas supply from APLNG will start following the completion of the turnaround.
“We are pleased to partner with Australia Pacific LNG to obtain affordable gas for the continued operation of the Gibson Island plant. We also appreciate the support of APA Group, who will transport the gas to Gibson Island,” said IPL Managing Director and CEO Jeanne Johns.
Johns also acknowledged the support of the Queensland Government, particularly Premier Annastacia Palaszczuk and her government’s domestic-only gas policy initiative to support local manufacturing businesses and jobs, in securing the gas supply deal.
The arrangements enabling the continuation of operations at the Gibson Island plant remain subject to APLNG’s receipt of the Australian Foreign Investment Review Board’s (FIRB) approval. APLNG is a joint venture between Conoco Phillips (37.5 percent), Origin Energy (37.5 percent), and Sinopec (25 percent).
IPL last year said it had made a commitment to “leaving no stone unturned” regarding securing affordable gas supply for the Gibson Island facility, but had emphasized it could not make a decision that “destroys value.”
Johns told analysts in the company’s fiscal half-year earnings call last month the threshold to keep the plant open was all down to the gas price that could be secured.
“When we did the one-year gas supply extension, it was to keep the option open,” she had said. “We are now looking for a three-year extension, which has to justify an upfront investment in capacity for a turnaround. So therefore by definition, it requires a lower gas price than we had for a single year in order to justify it.”
IPL signed the agreements for the interim gas supply and delivery to Gibson Island through to Dec. 31, 2019 in June 2018 with Central Petroleum Ltd. and certain of its subsidiaries, Macquarie Mereenie Pty Ltd., subsidiaries of APA Group, and Jemena Northern Gas Pipeline Pty Ltd. (GM June 29, 2018).
IPL said it expects group earnings before interest and tax (EBIT) in FY2020 to increase by approximately A$5 million over forecast EBIT in FY2019 as a result of the continued operation of the Gibson Island plant. It said this assumed a urea price of US$280/mt and a forex rate of US$0.69, which approximate current spot prices. The FY2020 EBIT expectation includes the impact of the major turnaround at the Gibson Island plant.
As previously announced, IPL and Central Petroleum are continuing their exploration of potential gas supply to feed the Gibson Island plant beyond 2022 from a gas tenement acreage in Queensland.
The Gibson Island plant has nameplate capacity to manufacture 300,000 mt/y of ammonia, 280,000 mt/y of urea, and 200,000 mt/y of ammonium sulfate, according to IPL’s website. The plant’s 2019 fiscal first-half (Oct.1, 2018-March 31, 2019) urea equivalent production was down 38 percent, to 136,900 mt from 220,100 mt, though this was due to a planned outage for maintenance (GM May 24, p. 31).