AGL says gas plants to close

Rising gas prices and falling carbon prices make gas plants uneconomic

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published August 5, 2013 12:16 pm AEST

AGL Energy (ASX:AGK) has warned that some of Australia's largest gas power plants are facing closure.

AGL's chief executive Michael Fraser has told The Australian that as gas prices rise and the carbon price falls, baseload power stations across Queensland, NSW and South Australia might not survive.

"Baseload gas plants like Darling Downs that Origin has, some of the Braemer plants (in Queensland), Tallawarra (NSW) and Pelican Point (SA), those things don't work under a high-gas, low-carbon scenario," he said.

Gas prices are rising as liquefied natural gas (LNG) plants worth $60 billion are being built in Gladstone to export Queensland's large coal seam gas resources. With much of the gas going offshore, demand for local east coast gas is expected to triple in coming years and prices are expected to more than double.

The Australian says newly constructed gas plants won't be able to compete with coal-fired power under the current carbon prices, let alone lower or non-existent carbon prices in future. The federal Labor government has moved to a floating carbon price of between $6 and $10 per tonne and away from the current fixed price of $24.15 per tonne, while the Coalition has vowed to dump the carbon tax altogether.

AGL is been forced to lock in higher gas prices under contracts with suppliers Santos Limited (ASX:STO) and BHP Billiton (ASX:BHP)/ExxonMobil, but is currently in arbitration over price increases.

Power plant owners are disputing AGL's claims, with Energy Australia saying its Tallawarra plant could operate in a peaking role (to provide electricity in times of high demand), but a spokesperson for the company admitted that some gas-fired plants were in danger of closure. Origin Energy (ASX:ORG) said its Darling Downs was one of the cleanest baseload power stations in Australia and would continue to provide a reliable supply of energy into Queensland.

Foolish takeaway

As Australia moves to providing cleaner, greener electricity, gas will play an important part. While it seems unlikely that gas plants will close, further gas discoveries would at least take the pressure off.

Interested in our #1 dividend-paying stock? Discover The Motley Fool's favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2013-2014."

More reading

Motley Fool writer/analyst Mike King owns shares in BHP and Santos.

Automatic Renewal

By taking up this offer, you will also be enrolled in our auto-renewal program, which is our way of making your ongoing subscription easier by ensuring uninterrupted service. Don't worry, though – you're not locked in, and can cancel your auto-renewal at any time before each 'anniversary' date without question or penalty.