APA Group commits A$700 million to new gas pipeline

Key Facts

APA Group announced in a statement dated October 22 Australian time that it had made a final investment decision on the Bulloo Interlink gas pipeline project to support supplies flowing south amid an expected shortfall. The decision commits the group to spending A$700 million on construction and initial commissioning. This is in addition to an earlier A$220 million investment allocated to early works, during which pipe procurement, engineering, approvals and development work progressed. The group said the project forms part of an organic growth portfolio of about A$3.5 billion and will be funded from its existing balance sheet capacity. It expects returns to exceed its investment hurdle rates. On the regulatory front, the Australian Energy Regulator approved a 10-year period of protection from a move to stricter regulation from the start of operations. This is shorter than the period requested by the group, with the regulator saying it had approved "a shorter duration of 10 years, rather than the full 15-year period".

The pipeline has a stated maximum capacity of 800 terajoules a day, according to the group's project page, and is approximately 340 kilometres long. APA owns 100% of the project, which forms part of the expansion of Australia's east coast gas transmission network. In its earlier environmental assessment update, it said the new direct route would shorten the north-to-south transmission corridor by about 240 kilometres. The group says the broader expansion will increase gas transmission capacity in this direction by about 30% when completed. Once those works are completed, the cumulative increase in north-to-south transmission capacity will have exceeded 50% compared with 2023, according to company estimates.

Commercial support for the investment rests on an agreement APA signed with Origin for gas transport and storage services across its broader eastern network. The agreement runs for 5 years and includes Bulloo Interlink among the services provided by the network once the pipeline enters service. The group described the contract in its statement as "take-or-pay and inflation-linked". The agreement provides a firm revenue commitment across the eastern network, according to the company. The take-or-pay provision makes Origin's contractual commitment the basis for this revenue, while the inflation clause links payments to changes in inflation over the agreement's term.

The transmission expansion comes as the Australian Competition and Consumer Commission expects domestic production in the southern states to fall short of demand by 64 petajoules from April to September 2027. According to the commission, those states will increasingly rely on gas from Queensland and withdrawals from storage to meet their needs. By contrast, the commission forecasts a surplus of 5 petajoules in the first quarter of 2027, even assuming liquefied natural gas producers export all their uncontracted volumes. However, the Department of Industry, Science and Resources said this expected surplus is 9 petajoules below the commission's previous estimate for the same quarter. The department attributed the downward revision to lower expected production in the south and increased export demand, both of which put pressure on supplies available to the domestic market.

Alongside investment in transmission, the Australian government's proposed domestic gas reservation plan includes setting aside up to 20% of gas exports for Australian consumers. The government said the aim is to improve supply availability and put downward pressure on prices as part of reforms for which legislation is being prepared. On implementation, APA aims to begin pipeline construction in early 2027, subject to relevant approvals. The new network services contracted with Origin begin on January 1, 2028, after the company's existing arrangements expire. The Department of Climate Change, Energy, the Environment and Water also expects domestic gas reservation obligations to begin on January 1, 2028. For Bulloo Interlink itself, the group is targeting the start of commercial operations in the Australian winter of 2029. APA expects project revenue to ramp up gradually over about 5 years after operations begin.