When looking for long-term growth plays with stable income and comparatively low running costs, investors shouldn't overlook APA Group (ASX: APA). This is the largest gas infrastructure company in Australia, with oil, gas and electricity networks stretching across the country. Yet one vital link remains to be connected and APA is driving to build it.
The last link in connecting northern and eastern Australia lies between QLD and NT. Soon three LNG projects that are being developed separately by Santos Ltd (ASX: STO), Origin Energy Ltd (ASX: ORG) and BG Group will be operating on the east coast. That will certainly raise LNG production, yet demand for the energy resource is expected to expand faster than supply. There are also new LNG sources from NT that can't directly access the NSW and VIC energy markets.
APA is in the running to win the contract for a $1.3 billion pipeline and was short-listed this month along with eight other companies vying for the development project.
APA Group National pipeline and transmission network map
Three alternative pipelines are being considered which hook up APA's existing pipeline network in NT to Moomba in SA, Mt Isa in QLD or a location between the two.
Three pipeline options to link north and south
Source: APA Group, Investor information and 1H15 results highlights
APA recently acquired the QCLNG pipeline that links the BG Group's LNG project in Gladstone with the Surat Basin gas fields in QLD, as well as APA's pipelines from the Cooper Basin to Brisbane. Building and operating the pipeline linking NT to the eastern coast would allow APA to transport gas to major eastern markets as demand dictates.
Final submissions for the project are to close in September 2015.
APA Group could be a stable long-term investment. Although pipeline construction can be costly, the operating company has very little competition and acts as a tollgate keeper that collects its payment as gas supplies pass through its network. Once in place, pipelines don't need great amounts of capital investment and only require ongoing maintenance and repair.
That keeps costs down and potentially grows profits easier. The company isn't directly exposed to the ups and downs of a commodity market. Gas supplies will flow through its networks for decades supplying VIC and NSW, as well as going to the QLD LNG projects for LNG export. APA Group could be a solid part of a dividend portfolio for many years to come.
