APA hunting North American gas targets, warns of uncertainty in market
The Sydney-based company has been scanning US targets as it looks to add a higher margin business to its regulated Australian earnings.
Gas pipeline giant APA Group has revealed it lost out on bidding for a major deal in North America as it warned that a growing debate over the role of gas in the energy mix had contributed to uncertainty for some Australian customers to renew their contracts.
The Sydney-based company has been scanning US targets as it seeks to add a higher margin business to its regulated Australian earnings and is aiming at electricity integrated energy infrastructure in addition to its search for gas pipelines and utilities.
APA started looking for a $4bn-plus buyout more than two years ago under former boss Mick McCormack and, while it had failed to win a recent bidding contest, it is actively pursuing plans for the international expansion.
“We were very competitive in that process and I think that gave us a lot of confidence,” APA chief executive Rob Wheals said, without revealing which asset or company it bid for.
“As for why we weren’t successful in this particular instance, there’s always a range of reasons. Some assets the whole business is for sale and some are where there is a carve out of another business, and that creates more challenges for a business like ourselves, because we don’t yet have our platform on the ground.
“We remain optimistic on the opportunities in that market.”
APA’s annual earnings dipped as contract renewals from customers softened amid challenging market conditions.
The ramp-up of a debate over the role of gas in the energy mix may have weighed on buyer sentiment, according to the APA chief.
“There’s a focus on the one hand on a gas-led recovery and bringing more gas into the market and then on the other hand a focus on some reports coming out saying there should be less gas development,” he said. “So when you’ve got all that uncertainty in the marketplace, it does reflect back into uncertainty in the case of some customers making decisions.”
Big energy companies including APA are already concerned by a move from the Victorian government to pursue a road map to substitute gas for other energy sources as part of its net zero emissions goal by 2050.
Companies that deliver half of Australia’s gas – APA, AusNet Services, Australian Gas Infrastructure Group and Jemena – estimate swapping the fuel out of the state’s supplies would require a rise in electricity network capacity from 10 gigawatts to 30GW to meet peak winter demand.
Keeping gas in the grid would save $12bn-$14bn annually from 2050 in electricity maintenance and capital expenditure costs, the companies told the Andrews government in their submissions.
Renewable gases such as hydrogen and biomethane also offer a path to “fully decarbonise” the Victorian energy grid.
APA also rejected concern by the competition regulator of a potential gas shortfall in 2022 and said it was among companies expanding the east coast grid while new supplies also needed to come to market.
“There have been forecast shortfalls for the last decade,” Mr Wheals said. “The point is that the market is tight and it’s going to remain tight where there are decisions not to develop more gas and bring it into the system.”
APA’s underlying earnings fell 1.3 per cent to $1.633bn for the 2021 financial year, at the lower end of a $1.625bn-$1.665bn guidance by the company.
Underlying profit declined 10 per cent to $281m while on a statutory basis profit plunged 98 per cent to $3.6m after it took a previously announced $249m writedown on its Orbost gas plant.
A full-year payout to shareholders of 51c per security is up 2 per cent on last year while it expects to lift returns to 53c in the 2022 financial year.
The company owns 15,000km of gas pipelines across Australia and delivers half the nation’s gas.
APA fell 3 per cent to $9.66.
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