Australian Utility AGL Expects Lower Earnings as it Buys More Gas from Spot Markets
Australian utility AGL Energy Limited (AGL) expects lower earnings growth in the upcoming financial year as it is forced to acquire a higher than anticipated proportion of wholesale gas from the spot market and other short-term sources.
“This has been driven by the recent curtailment of Queensland gas supply arising from safety issues at a key supplier’s project, other supply constraints in the gas market and increased demand at the AGL Torrens power station,” the company said on Thursday.
Although, gas market constraints are not expected to have any impact on AGL’s ability to meet customer gas demand, the high prices prevalent in the spot market arising from strong Australian east coast demand may have negative impact on its pre-tax wholesale gas margin in the first quarter of FY17 of approximately A$35 million.
AGL expects to deliver earnings growth in FY17, however, the company sees the total pre-tax contribution to margin from its energy markets gas portfolio in FY17 to be lower than FY16 by at least A$100 million.
Earlier this year, Australian Competition and Consumer Commission (ACCC) released a report on the competitiveness of wholesale gas prices in eastern and southern Australia.
On the occasion of the launch of the report, ACCC Chairman Rod Sims said changes in the east coast gas market over the last four years with the development of LNG facilities in Queensland have created winners and losers. There is uncertainty about future supply outlook and some suppliers have taken advantage of this supply uncertainty and potential shortfalls to increase prices and implement more restrictive non-price terms and conditions, he said.
The report found a A$2 per gigajoule increase in the wholesale price of gas could increase residential bills by 5 per cent in New South Wales and 11 per cent in Victoria.
In addition to supply tightness and effects of pipeline pricing, opacity and illiquidity in east coast gas market are adding to the woes.
“Confidential bilateral negotiations remain the norm for both gas supply and transportation contracts. The lack of consistent, publicly available data on the sector is an impediment to participants, investors, and policy makers,” Sims said.