Gas lifts Origin earnings

Profits offset volatile electricity market

ORIGIN Energy has forecast a lift in energy markets earnings of up to 78 per cent for the 2023 financial year, with a boost in gas profits offsetting sluggish conditions from its electricity business.

The energy giant, which owns a 27.5 per cent stake in the APLNG gas export plant in Queensland, expects underlying earnings of $500-$650m from $365m in the 2022 financial year.

Further growth in energy markets profits is expected in 2024 as higher wholesale electricity prices flow through to customer bills. Still, it noted electricity earnings would in part hinge on coal contracting after it suffered shortfalls in supply at its Eraring coal plant in NSW earlier this year.

Origin has contracted 4.4 million tonnes of coal and expects to reach a 5-6 million tonne target by the end of the 2022 calendar year.

“Coal rail deliveries and mine performance have significantly improved over recent months, however, there remains a risk of coal underdelivery. The coal stockpile has increased and is currently around 660,000 tonnes,” Origin said.

APLNG production for 2023 is expected between 680-710 petajoules from 693PJS last year, while capital management initiatives will be taken at its interim results in February. Gas earnings in 2024 are subject to a 50PJ gas supply contract price review outcome.

Origin had withdrawn earnings guidance in June for the 2023 financial year amid huge volatility in electricity markets and coal supply problems at its Eraring plant.

The problems with its energy markets business were in part been caused by issues with

Eraring’s supplier Centennial Coal, which had struggled with production snags at its Mandalong mine. That means the company is exposed to paying higher wholesale prices to buy alternate supplies to meet customer demand.

Origin last week said wholesale prices indicated a leap in electricity prices was likely to hit the market once new tariffs were set in July 2023 and chief executive Frank Calabria noted price pressures at its annual general meeting on Wednesday.

Households have already been slugged this winter with an increase in power bills of hundreds of dollars as tight supply pushes up wholesale electricity prices and Russia’s invasion of Ukraine inflates international commodity markets.

“While the Russian invasion of Ukraine has disrupted global energy supply and elevated commodity prices, in June, we saw the national electricity market tested like never before amid several coal plant outages and coal supply challenges,” Mr Calabria told the AGM.

“Domestic wholesale energy prices escalated sharply, contributing to the failure of seven smaller energy retailers. This increase in wholesale energy prices, has already flowed through, in part, to retail energy prices. We are cognisant of the additional pressure this can place on household finances, at a time of broader cost of living pressures.”

AMP chief economist Shane Oliver said if predictions of a 35 per cent rise in power prices were realised, it would add an extra 0.6 per cent to inflation and put pressure on the Reserve Bank to be more aggressive in raising interest rates.

Origin shares were up 0.4 per cent to $5.74 in a higher market late Wednesday morning.