News: STO UPDATE 1-Australia's competition watchdog warns high gas prices threaten manufacturers

• Tripling of gas prices threatens manufacturers
• Cut prices or face consequences, watchdog warns
• Gas prices make Orica Australia plant uncompetitive

(Adds Orica CEO comments)

Australia's gas prices are so high they could force the imminent shutdown of some manufacturing on the east coast, the nation's competition watchdog said on Tuesday, urging gas producers to step up output and offer reasonable prices.

The warning comes three years after the Australian Competition and Consumer Commission first flagged prices were rising amid uncertainty over domestic gas supply, due to the start-up of liquefied natural gas (LNG) exports from the eastern state of Queensland, cuts in exploration spending and drilling bans.

"Many Australian manufacturers are under extreme pressure to remain internationally competitive," Australian Competition and Consumer Commission Chairman Rod Sims told a gas conference in Sydney.

"The high cost of gas, and the high cost of electricity, is making it extremely hard for these businesses and poses an imminent threat."

While gas price offers to manufacturers have dropped to around A$10 to A$12 a gigajoule (GJ) from as much as A$22/GJ in 2017, they are still two to three times higher than they were before LNG exports began pulling gas out of the domestic market.

Businesses and manufacturers dependent on gas for their operations have told the watchdog they are increasingly likely to move from the east coast or shut operations, Sims said.

The Australian government succeeded two years ago in pressuring the three east coast LNG exporters - led by ConocoPhillips COP.N and Origin Energy (ORG) , Royal Dutch Shell RDSa.L and Santos Ltd (STO) - to boost local gas supply. But Sims said producers now need to "provide immediate price relief to the manufacturing sector".

"If more businesses start to fail, pressure will inevitably ramp up again on governments to do more; indeed a lot more," he warned.

States also need to do more to encourage new gas development by lifting blanket drilling bans.

"This is particularly critical for gas users in the southern states, who are likely to become increasingly reliant on gas from interstate or overseas," Sims said.

The high gas prices and prospects of a supply shortage have attracted five proposals to import LNG into southeastern Australia, even as Australia is poised to become the world's top LNG exporter.

Orica Ltd (ORI) , the world's top maker of industrial explosives, said it may eventually be cheaper for it to import ammonium nitrate to Australia than make it at its Newcastle plant, because gas prices are so high.

"Put simply, the price of Australian gas makes our Australian plant uncompetitive in the global context," Orica Chief Executive Alberto Calderon said at the conference.