AGL Energy caught short in gas supply drought

AGL

The Financial Review has said AGL Energy’s profit warning after it was forced to source gas from the expensive spot market, is a reminder of the potential energy crisis facing east coast gas markets as buyers struggle with supply issues.

But it also exposes AGL’s vulnerability to even the smallest ripples in supply.

The electricity provider, which earlier this year pulled out of coal seam gas in Australia, is more exposed to this than other electricity providers like Origin Energy.

The company’s shares fell more than 4 per cent after announcing there would be a $35 million hit to its wholesale gas margin in the first quarter of the current financial year because it was forced to buy more gas from the spot market in order to customer demand.

The spot market became a costly last resort for AGL because wholesale spiked just when it needed to buy gas. The move will have a $35 million negative impact on AGL’s pre-tax wholesale gas margin in the first quarter of the 2017 financial year. It also expects the total pre-tax contribution to margin from its Energy Markets gas portfolio in 2017 to be at least $100 million lower than 2016.

Higher electricity prices could come to its rescue though after average wholesale prices jumped in the June quarter. Macquarie analysts note some corporate contracts will be renewed in coming months, which could mitigate some of the earnings pressure.