APA Limited (APA, ASX: APA) is an energy infrastructure business that owns and/or manages and operates a $26 billion portfolio of gas, electricity, solar and wind assets. The Group delivers around half of Australia’s domestic gas through 15,000 kilometres of gas pipelines that it owns, operates, and maintains. APA has investments in electricity transmission assets that connect Victoria with South Australia, Tasmania with Victoria, and New South Wales with Queensland. These connections provide flexibility and support for the nation’s grid to ensure that power is available when and where it is needed. APA also owns and operates power generation assets, including gas powered, wind and solar assets across the country.
Australia’s ongoing dependency on gas
The Federal Government’s Future Gas Strategy has clearly documented that gas has a key role to play in meeting Australia’s future energy demand during the economy-wide transition to renewable energy sources.
On 9 May 2024, the Department of Industry, Science and Resources published the Future Gas Strategy that predicts East coast gas supply shortages will occur from 2028. This will require new gas supply to increasingly come from Queensland and the Northern Territory to meet gas demand from the southern states’ industries and consumers. This is likely to require increased capacity of APA’s existing East coast network to build the resilience of the network.
This increased capacity may include import terminals which offer the shortest potential time frames to develop. The Report states that LNG prices are expected to ease in coming years as supply from the United States and Qatar rises. These factors will raise the relative value proposition of import terminals.
Turning to the other side of the country, West coast gas supply may fall short of demand in the near term, requiring drawdown from storage. From 2030, without greater use of alternatives, efficiencies and investment in new supplies, growing demand will drive increasing shortages and potentially place pressure on prices and contracting, new East coast gas production and new pipelines.
Against this rising demand for gas in the near-term, APA will continue to advocate for the right regulatory settings to support its strategy execution by taking proactive steps to manage the regulatory environment and deliver operational efficiencies to capture value for its securityholders.
Pilbara Energy System
The Pilbara Energy System was acquired from Alinta Energy in August 2023 and provides APA with a significant growth platform to develop and operate remote-grid energy solutions for Australia’s resource industry. The Pilbara Energy System comes with existing long-term Power Purchase Agreements with Australia’s major resource companies and an attractive pipeline of projects to supply renewable energy to one of the world’s leading mining geographies. These projects include large scale gas, renewables, and storage infrastructure that provide reliable, affordable and lower emissions energy as the resources sector continues to decarbonise. The acquisition complements APA’s proven operational capabilities in key resources areas such as Mount Isa and Gruyere.
Balance sheet positioned to support asset growth
APA is well capitalised to fulfil investment opportunities that ensure reliability of power supply to its markets. These investment opportunities include the Pilbara where electricity demand is expected to grow 40 times between now and 2040 and the East Coast Grid where the Australian Energy Market Operator has forecast gas flows to reach capacity limits under high demand conditions for about 15 percent of the year from 2026. Other investment opportunities are connecting renewable energy sources to customers which requires an additional 10,000 kilometres of electricity transmission in designated Renewable Energy Zones.
To fund this investment in growth APA raised $1,075 million in fresh equity and $828 million in subordinated capital notes and $1,250 million by way of a syndicated term loan in FY24. The weighted average cost of debt was 4.8 percent in FY24, and the average duration of debt is 5.3 years. APA maintains a strong balance sheet with interest expense covered 3.2 times by Funds From Operations (FFO) and an investment grade credit rating of BBB.
The Future
Australia’s energy transition is core to APA’s future business growth. The Group’s portfolio of assets is focused on four asset classes. These asset classes are contracted power generation, electricity transmission, gas transmission and storage, and future energy technologies, such as hydrogen, biofuels and carbon capture and storage.
Moreover, APA’s existing gas infrastructure and planned renewable energy development projects will remain a critical part of Australia’s future energy mix. APA’s existing assets and planned development projects will support expansion of the renewable energy generation required to replace retiring coal power stations. These development projects include the introduction of renewable generation, firmed with a combination of short-duration energy storage (for example, batteries) and generation technologies such as natural gas and hydro. In the interim, natural gas will continue to be important to powering Australia’s households and industrial sectors for decades to come.
In the immediate term, FY25 guidance has been stated at Underlying EBITDA of between $1,960 million and $2,020 million and FY25 distribution per security guidance is 57 cents per security. This compares to FY24 Underlying EBITDA of $1,893 million and 56 cents distribution per security.
