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good news for qgc AGL spells out why the PNG pipeline isn't a prudent play
Rod Myer
August 30, 2006


AUSTRALIAN Gas Light has hardened its line against proceeding with the planned $4 billion Papua New Guinea gas pipeline to Australia.

Managing director Paul Anthony said the project was unlikely to suit the company's needs following its asset swap with Alinta, even if enough foundation customers could be signed up to make it viable.

AGL said 12 days ago it and partner Petronas would not spend any more on the project until adequate foundation customers were signed.

Yesterday Mr Anthony said: "We would only invest in the PNG pipeline if it met all our investment criteria and it promised to be a prudent decision for the new (post-Alinta deal) AGL."

"Even if it gets customers, whether for AGL an investment in pipeline infrastructure is something it should be doing is highly questionable," he said.

Mr Anthony also said the proposed asset swap deal with Alinta, on which shareholders will soon vote, would deliver a slight boost in dividends for next year. Dividends per AGL share after the deal are now expected to be 114.3¢, compared with the 113.6¢ expected previously.

AGL has made significant steps to insulate itself from the success or otherwise of the PNG pipeline project. It has bought half of two coal-seam gas projects, Mooranbah in Queensland and Sydney Gas in NSW, as well as contracting for coal-seam gas from other Queensland producers. If the PNG pipeline does not go ahead, these resources will help it supply its retail gas customers for some time.

AGL appeared to give significant backing to the PNG concept in July last year when it invested $560 million in the upstream consortium that will supply gas to the project, as well as agreeing to take $4.5 billion worth of gas over 20 years. But Mr Anthony has now thrown light on the detail of that investment.

Of the $560 million invested in the upstream deposits, only $39 million is invested in gas fields, with the rest applying to oil production. The oil investment is expected to feed $250 million into earnings this year, so AGL can afford to wait a long time to get a return on its $39 million gas investment.

As for the $4.5 billion commitment to take PNG gas, if the pipeline is not built, the commitment is void. So it appears AGL has little to lose if PNG gas does not go ahead. It has covered its contracted needs with coal-seam gas in Queensland and stands to win a handsome profit from its investment in the PNG upstream oil deposits, regardless of whether any of the 550 petajoules of gas in the PNG highlands ever gets to Australia.

Mr Anthony said AGL was one of the bidders for the Queensland Government's 800,000-customer energy retail business that will be privatised later this year.

AGL shares ended up 40¢ yesterday, or 2 per cent, to $19.98.