Origin Energy boosts gas revenues amid cap threat
Origin Energy’s gas revenues hit $2.77bn in the September quarter, as the federal government weighs setting caps on the domestic market to ease high costs.
Origin Energy boosted gas revenues to $2.77bn in the September quarter as prices doubled on the east coast, the latest pressure point for Anthony Albanese as Labor weighs setting caps on the domestic market to ease high costs.
The energy retailer reported a 64 per cent rise in Australia Pacific LNG revenue in the three months to September 30 compared with the same time a year ago, while its average price for domestic gas jumped to $12.44 a gigajoule from $6.36 in the prior quarter.
The average domestic spot gas price for the September quarter was $26 a gigajoule, nearly triple levels of a year ago, but lower than a $29GJ high in the June quarter. Origin pointed to the average domestic gas spot price remaining below export gas prices, which have soared beyond $40GJ at times this year.
“Market conditions have improved following the incredibly challenging June quarter during which we experienced significant power supply challenges and elevated wholesale prices across the national electricity market,” Origin chief executive Frank Calabria told investors on Monday.
Origin is tipping a huge turnaround for its LNG trading business, especially in the 2025 financial year, where hedging at strong prices from the Cameron LNG plant in the US will deliver an earnings windfall of between $350m and $550m.
“Origin flagged its 2025 LNG trading business is in the money big-time,” CLSA analyst Daniel Butcher said. “While 2023 and 2024 are probably break-even (previously out of the money), from 2025 Origin can hedge much of the Cameron volumes at sky-high LNG forward curve prices.”
Origin is among big gas players in the crosshairs of a move by the federal government to impose a domestic gas price cap in a bid to ease a cost crunch for users on the nation’s east coast.
Jim Chalmers is weighing imposing a price cap and the government will consider any proposed changes from Treasury to increase revenue from gas extraction through a strengthened petroleum resource rent tax.
Richard Cottee, a pioneer of Queensland’s coal seam gas industry, told The Australian more competition and supply was the answer rather than the blunt tool of price caps.
“The only way of moderating price increases is by increasing competition and increasing supply,” Mr Cottee, now executive chairman at State Gas, said. “Regulating the price will ensure there is no competition.”
Risks were increasing but the chances of major political reforms for the petroleum tax were unlikely, according to Credit Suisse, and could spark a backlash akin to the failed mining super profits tax.
“Fiddling with the PRRT regime is unlikely to present a material benefit for the current government and risks a political backlash similar to when Labor tried to introduce the mining super profits tax a decade ago,” Credit Suisse’s Saul Kavonic said.
Australian manufacturers are being offered gas contracts of up to $35GJ – more than triple levels from a year ago – as an international gas crunch filters through to the nation’s east coast along with a forecast shortage of local supplies in the market.
The International Energy Agency last week predicted the tense situation for gas markets was likely to remain in place for several more years. The benchmark European TTF gas contract is projected to remain between $US20‐30 million British thermal units until the mid‐2020s, up to triple historical levels.
APLNG’s realised oil price, excluding Origin’s hedging cost, in the September quarter was $US104 per barrel ($152/bbl), up from $US84/bbl in the prior three months and a 60 per cent jump from $US65/bbl a year ago.
The end of an onerous gas contract appears to have given Origin the earnings boost. It signed a 20-year contract with Sempra Energy’s Cameron LNG facility in Louisiana back in 2013 with the bulk of that gas thought to be sold to China’s ENN.
However, the current contract expires at the end of the 2024 financial year, which will give Origin the ability to buy gas at Henry Hub prices in the US and sell into the higher priced Asian or European markets, handing it an earnings bounce.
Planned maintenance on its Queensland export plant saw a 19 per cent decline in LNG sales volumes, meaning revenue only edged up 1 per cent compared to the June quarter. Production declined 2 per cent to 167.5 petajoules from 170.5PJ in the June quarter, due to wet weather impacting access to gas wells.
It marks a big turnaround after Origin in 2020 took a $440m-$460m impairment on the Cameron contract due to weaker LNG prices. Origin rose 3 per cent, or 16c, to $5.57 on Monday.
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