APA pushes ahead with pipeline

APA Group will spend $460m building a new West Australian gas pipeline connecting the gas-rich Perth Basin to the Goldfields region.

APA Group will spend $460m building a new West Australian gas pipeline.

APA Group will spend $460m building a new West Australian gas pipeline connecting the gas-rich Perth Basin to the Goldfields region, despite only having contracts in place for a quarter of the capacity.

The scheme marks the first major investment since chief executive Rob Wheals took the top job in July 2019 with the new 580km pipeline to create an interconnected WA grid when it starts operations in mid-2022.

The Goldfields region holds gold, potash and battery minerals deposits with miners looking to incorporate renewables and battery storage to power their operations, backed by gas. Still, for APA the low level of contract take-up was noted by analysts as a departure from its usual deals.

The 25 per cent contractual level “is much lower than APA would typically proceed with, illustrative of a lower risk adjusted return environment: past projects have been almost entirely underwritten by long-term transport agreements”, Credit Suisse analyst Peter Wilson said.

The Northern Goldfields Interconnect pipeline will link up with APA’s existing 1378km Goldfield gas pipeline that runs from the Pilbara to Kalgoorlie. Mr Wheals said he was comfortable with the contracting strategy.

“We’ve expanded the Goldfields pipeline three-fold over its lifetime to date and so we have a proven model of building and contracting that capacity,” Mr Wheals said. “While some of our customers cannot commit as of today, we know they will be committing in time to come.”

The Morrison government’s asset depreciation tax incentives played a part in signing off the pipeline project along with support from the WA government, Mr Wheals added.

APA will also continue to progress its $500m, 460km Western Slopes pipeline in NSW which connects to the existing Moomba-Sydney pipeline following Santos gaining federal environmental approval for its Narrabri gas project on Tuesday.

Work has been largely completed on its environmental impact statement before being sent to the Department of Planning for formal assessment. An engineering and design process has also started and will be finalised as Santos works through its own 12- to 18-month appraisal program at Narrabri. Santos is expected to make a final investment decision in 2022.

“In terms of us going to our next step which is the submission of the EIS, that would be subject to Santos confirming that’s the pipeline route to market they want to choose,” Mr Wheals said. “Once that’s approved, subject to them proving up the resources and giving a final investment decision to the project, that’s when construction works would start.”

Separately, the Kerry Stokes-backed Beach Energy says a $4 a gigajoule target for contracted gas on the east coast is “fantasy”.

Former Dow boss Andrew Liveris — who advised the government’s National Covid Coordination Commission on how manufacturing could help boost the economy out of the pandemic — initially set a $4GJ target earlier this year though more recently suggested a $4-$6 goal may be more realistic.

“It needs to be cautioned that talk of $4 gas for term contracts is a fantasy because, to put it simply, this gas doesn’t exist,” Beach chief executive Matt Kay said.

APA fell 0.6 per cent to $10.53 and Beach declined 1.9 per cent to $1.82.