APA gets green light to push ahead with east coast gas network expansion

A ruling by the energy regulator has effectively given APA the green light for the project, which will boost capacity on its SWQP and Moomba Wilton Pipeline.

APA will move forward with the third stage of its east coast grid expansion project, which will boost capacity on its SWQP and Moomba Wilton Pipeline. Picture: Getty Images.

APA says it will push ahead with plans to expand its east coast gas network after a preliminary decision from the Australian Energy Regulator to maintain current pricing rules for one of its key pipelines.

In a draft decision following a review of APA’s South West Queensland Pipeline (SWQP) – a key supply link connecting Queensland with the southern states – the regulator concluded the pipeline should remain a “non-scheme” pipeline subject to “lighter handed” regulation.

While describing the decision as “finely balanced”, the regulator said the benefits of more stringent pricing rules were unlikely to outweigh higher regulatory and administrative costs, due to uncertainty over whether prices would be substantially improved and recent improvements to the non-scheme regulatory regime that may improve shippers’ ability to negotiate access to the pipeline.

“We have concerns about the extent of APA’s market power, and that current access prices may not be cost-reflective,” the AER said in its draft decision.

“However, we have not heard clear support for scheme regulation from many stakeholders. Further, outcomes under non-scheme regulation could potentially improve in the future.

“Given this, the potential for APA’s power to be constrained to some extent and access under non-scheme regulation to improve in the future, and as there are lower costs associated with non-scheme regulation, we consider that non-scheme regulation is more appropriate for the SWQP at this time.”

APA’s South West Queensland Pipeline (SWQP) is a key supply link connecting Queensland with the southern states.

The AER is inviting feedback as part of a consultation phase ahead of a final decision expected in early December.

APA chief executive Adam Watson welcomed the draft decision, having previously warned that imposing full price regulation on the SWQP would push up energy bills for residential and commercial consumers, and exacerbate the risk of gas shortages in the southern states.

He said the company was now ready to move forward with the third stage of its east coast grid expansion project which would boost capacity on its SWQP and Moomba Wilton Pipeline.

“APA welcomes the AER’s draft decision to maintain the current form of regulation for the SWQP,” he said.

“Regulatory settings play an important role in supporting investment confidence and the delivery of projects that are important for Australia’s energy security and transition.

“This decision, if confirmed, creates confidence to make the necessary investment in our east coast gas grid to support energy security for our customers and consumers.

“It will also help facilitate our nation’s ambition to deliver a reliable, affordable and lower emissions energy system.”

APA’s expansion of the SWQP, which links Wallumbilla in southeast Queensland to Moomba in South Australia, is seen as critical to ensure heavy industry and manufacturing in Victoria and NSW receive enough gas to keep their operations going.

The company had previously planned to sign off and begin construction of the third phase of its east coast expansion this year, but this was delayed due to regulatory uncertainty prompted by the AER’s review announcement in February.

APA Group chief executive Adam Watson. Picture: Bloomberg

In a note to clients, analysts at RBC Capital Markets said the SWQP was the most material non-scheme pipeline in APA’s network outside of the Wallumbilla Gladstone Pipeline that connects Queensland’s Surat Basin and APA’s east coast grid to the Curtis LNG export facility on Curtis Island.

“Overall, we view this as good news as the market was worried that a full regulation regime would slow down development by APA of new gas pipeline capacity, particularly for the east coast gas grid. In our view, these draft decisions normally become final.”

The AER was given the responsibility for determining the form of regulation of Australia’s gas pipelines in 2023 as part of new National Gas Law rules introduced by the federal government at the time.

The review of the SWQP is the first in a series of reviews the AER is planning over several years.

If the pipeline continues to operate under the non-scheme regime, an arbitration process will remain in place to handle customer complaints.

However, the AER said it would continue to monitor prices, terms and conditions on the pipeline, and if prices increased “without reasonable justification”, it wouldn’t rule out another review.

“Given our findings on current terms and conditions, we would like to see greater downward pressure on prices on the pipeline and negotiation on non-price terms and conditions improving, particularly for smaller shippers,” the regulator said in its draft decision.

“We are aware that capacity on the pipeline will begin to become available from early 2028. We will observe with interest the prices, terms and conditions on which the newly available capacity is sold.”

APA shares closed 2.6 per cent higher on Wednesday at $7.59.

Originally published as APA gets green light to push ahead with east coast gas network expansion