Crib Point delays could add to AGL’s costs, UBS warns

AGL may have to sign expensive short-team supply deals if delays on its Crib Point import facility continue.

AGL plan'to import gas at Crib Point via a new gas processing ship. Picture: Stuart McEvoy

An expected delay in AGL Energy’s planned LNG import plant in Victoria may force the power giant to cover a gas shortfall in its portfolio by signing expensive short-term contracts, UBS has warned.

Approvals for the Crib Point unit may now not be obtained until mid-2020 and may require changes to the import facility design and attract additional costs.

Given AGL faces an annual gas portfolio shortfall of 40 petajoules from 2021 on, it may have to look beyond the delayed gas import hub and instead strike deals at higher prevailing prices, potentially topping $10.50 a gigajoule.

“To ensure continuity of gas supply to meet AGL’s 150 petajoule portfolio demand, we had assumed the emerging supply shortfall in 2021 would be supplied by AGL’s own planned LNG import facility at Crib Point in Victoria,” UBS analyst Tom Allen said, noting the project was still waiting on a final investment decision.

“However, our review of the risks associated with obtaining environmental approvals and the timeframe required to secure those approvals has led us to change our base case supply assumption to now assume gas supply is sourced from recontracting existing gas resources at prevailing (higher) market prices.”

UBS has removed Crib Point from its base case gas supply assumption, replacing it with a scenario that sees it recontract gas supply from sources that may include competing LNG import terminals.

AGL may also be have an incentive to consider equity investments in future gas projects, according to the broker.

“We note that AGL might be able to secure gas supply at better-than-market-price if it takes on more upstream exposure through equity investments in yet-to-be developed sources of gas,” Mr Allen said. “We expect any additional exposure in upstream gas would be a non-operated position with the aim to secure attractive commercial price and terms.”

UBS cut its AGL price target to $18.35 from $21 with sell rating retained.