Orica to fund gas junior's project in move to shore up energy supplies

Another big industrial company has invested directly into the local energy sector, as companies try to secure energy supplies without wearing the full impact of soaring prices.

Another big industrial company has invested directly into the local energy sector, as companies try to secure energy supplies without wearing the full impact of soaring prices.

Chemical and explosive manufacturer Orica has agreed to fund development of an onshore gas project being spruiked by ASX junior Strike Energy, in a bid to eventually secure a cheap source of gas.

The deal means Orica will make pre-payments of up $52.5 million, enabling Strike to appraise and develop its gas deposit in South Australia's Cooper Basin. Strike is unlikely to produce any gas before 2016 but, if successful, the deal could have it deliver as much as 150 petajoules of gas to Orica.

In the period beyond 2015, gas prices are expected to almost double to about $9 per gigajoule on Australia's east coast, tempting big energy users such as Orica to try and lock in cheaper sources.

Strike managing director David Wrench declined to name the exact price Orica would be paying for its gas under the deal but he indicated Orica's status as Strike's foundation customer would come with benefits.

"There is a lot of commentary about the forward price being $6 to $9," he said. "I think it's fair to say that this [deal's] pricing is at the lower end of that range and possibly below it."

Orica chief executive Ian Smith said the deal would help reduce the cost of manufacturing in Australia.

"This agreement has the potential to provide a future new source of gas supply to our Australian east coast manufacturing plants at an affordable price," he said.

Shares in Orica closed 46¢ lower at $21, while Strike closed 15 per cent higher at 11.5¢.

Related Articles