APA Group warns it won’t upgrade critical gas pipeline if regulatory changes are made

APA Group will not upgrade a critical gas pipeline that the east coast has become increasingly ­reliant on in recent years if the regulatory regime that governs the infrastructure is changed.

APA Group will not upgrade a critical gas pipeline that the east coast has become increasingly ­reliant on in recent years if the regulatory regime that governs the infrastructure is changed, chief executive Adam Watson has warned.

The comments mark an escalation in APA’s pushback against possible regulatory changes, implemented when the federal government made its unprecedented intervention into the domestic gas market amid rising public anger about fuel bills.

The government has given the Australian Energy Regulator new powers to determine whether ­operators of the pipelines such as APA have too much market power and if that is inflating the cost of gas to households and businesses. APA denies any undue market power and has won support from major users of the pipeline, such as Origin Energy.

But Mr Watson said if the AER changed the way it regulates that asset, it would make it impossible to understand APA’s returns from expanding the South West Queensland Pipeline.

“It’s challenging to make investment decisions when you don’t know the returns you’re going to generate,” Mr Watson told The Australian.

“We can’t see it being done anywhere else in the world. But if you look at other processes where they do have heavy regulation, it generally takes years to get approval from the regulator to move forward with those investments, and we just don’t have the time.”

APA earlier this year paused the pipeline expansion.

If the regulatory regime is unchanged, Mr Watson said APA was ready to move quickly on expanding the pipeline. APA had planned to expand the pipeline’s capacity by 25 per cent through a stage 3 and 4 process, funnelling more gas to the southern states.

Work would be finished on the expanded pipeline capacity by 2027, Mr Watson said, just when the east coast is poised to lose a major supplier.

APA Group chief executive Adam Watson.

Supplies from the Bass Strait, which provides about 40 per cent of east coast gas demand, are expected to be exhausted by late 2027, and NSW and Victoria are seemingly reluctant to approve new domestic developments. As a result, both states are increasingly reliant on Queensland and the South West Queensland Pipeline.

But to fill the void, the pipeline is scheduled to run at capacity for nearly all next year, leaving the energy grid precariously placed.

The majority of domestic gas is used by heavy users and some residential homes in Victoria and ACT. But it plays a vital role in electricity generation, operating as a so-called peaker by supplementing traditional forms of power such as coal and sun.

A growing number of energy industry executives have warned that if the nation’s old fleet of coal power stations suffers an unplanned outage, there will be a ­little chance of expanding gas supplies south.

Energy industry sources said the situation means Australia will be dependent on a benign winter.

APA posted a near 10 per cent increase in annual earnings as strong demand for the fuel source and growth from its Pilbara operations underpin the company’s performance.

APA said annual earnings for the year totalled $1.89bn – up 9.7 per cent from the previous year, when the company posted returns of $1.73bn.

Net profit, including significant items, totalled $998m, up almost 250 per cent from the previous year. When significant items are excluded, APA said net profit was down 58.5 per cent.

APA will pay a dividend of 56c a share, up 1.8 per cent from the previous year.

Chief executive Adam Watson described the result as “solid”.

Shares fell 1.5 per cent to $7.82.

Originally published as APA Group warns it won’t upgrade critical gas pipeline if regulatory changes are made