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Australia: Kagome raises alarm on soaring gas prices

15/07/2022 - François-Xavier Branthôme - 2022 Season
The manufacturing sector worries about short-term sustainability without price action soon. Kagome says if it were to contract gas now for 2023 its cost would be around AUD 6-AUD 8 million (about USD 4.9 million) higher.

One of Australia's largest food processing centres has raised concerns over the future of the country's manufacturing industry if gas prices continue to increase. Echuca-based Kagome Australia secured its gas contract for 2023 in January of this year, AUD 1 million (USD 0.69 million) greater than their 2022 contract. Kagome Australia is the country's largest tomato processing company, delivering tomato-based products since 1996.

Workers from Australia's largest tomato processing company, Kagome, in Echuca.

Chief executive Jason Fritsch said the tomato processing plant was "very fortunate" to secure the contract early. "If we were to contract now for 2023 it will be in the order of AUD 6-AUD 8 million up," Mr Fritsch said. "But the point is that the gas market at the moment, obviously, is out of control."

Mr Fritsch said gas contracts for 2023-24 are about AUD 24-AUD 25 a gigajoule, whereas the Kagome Australia contract secured earlier is AUD 10 a gigajoule. "The reality is if we don't fix this, if this is not fixed, I'm not sure how we can operate in 2024 or 2025," he said. "That'd be very sad for the 300-odd employees that we've had in our facility over the last three months and, for all the good food that we produce that's been consumed here in Australia, New Zealand, and across South-East Asia."

How did we get here?
Professor Ariel Liebman is the director of the Monash Energy Institute's Faculty of Information Technology and said Australia's enthusiasm around gas export was crushed with recent geopolitical moves.
"When we found a bonanza of liquefied natural gas (LNG) opportunities up in Queensland we became quite enthusiastic about exporting that gas," he said.
"Up until then we had a small amount of supply, but a small amount of demand, so everything was sort of in balance. Now, suddenly, we've become part of the global market.
"I think in retrospect there was a bit delusional and we're seeing now that we're paying global prices. The global market is finely balanced and when Russia withdrew some of its supplies due to the war, suddenly the prices spiked." Professor Liebman said the spike of gas prices currently facing Australians was a "policy failure a couple of decades in the making".

So, what now?
Mr Fritsch is calling for government intervention to set a domestic reserve to secure gas for manufacturing in Australia at a competitive price. "We'll be aiming to sit down with the Minister for Energy and explaining our situation, not just myself, the whole collective," he said. "We're talking AUD 3-AUD 5 billion of spend here in regional Victoria, we're talking 3,000-5,000 employees.

" It would devastate the regional area that is the food bowl of the Goulburn Valley."Australia has been and has remained competitive in the manufacturing sector because we had a plentiful supply of competitively priced energy.
"If that disappears, it's going to make it very difficult for manufacturers to continue to operate."

Professor Liebman also backs government invention.
"We might get lucky, and we should at some point see a recovery of the Russian gas supply, but that's a short-term fix," he said. "We really need a rapid move towards an energy policy where Australians are looked after.
"I think if governments do something then this should be the worst of it. If they don't do anything then it might get better for a while, but then it'll get worse again."

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