Origin Energy locks in coal to ease power crunch

Power and gas supplier Origin Energy has locked in half of the 6 million tonnes of coal it needs to ease the threat of a fuel shortage curtailing output from Australia’s largest power station amid escalating concerns about rising east-coast electricity prices.

Origin last month warned challenges in sourcing black coal for its 2880-megawatt Eraring generator,on the shores of Lake Macquarie,had “deteriorated significantly” because of production problems at its supplier’s nearby coal mine.

Origin Energy’s Eraring coal-fired power station in NSW.

Origin Energy’s Eraring coal-fired power station in NSW.Dean Sewell

The shortage deepened supply fears amid an unprecedented energy crisis on the eastern seaboard,where a series of coal-fired power unit failures and rising fossil fuel costs pushed wholesale electricity prices to record levels.

For the first time in history,the Australian Energy Market Operator (AEMO) had to suspend the entire electricity market to stabilise the grid and avert blackouts.

Origin told investors on Friday said it had since made “good progress” in addressing Eraring’s coal supply constraints.

“Strong support[was] received from coal suppliers,rail network providers and the NSW government to increase rail deliveries,which increased from an average of one to two trains per day in early June,to an average of five trains per day in the second half of June,” the company said.

For the coal required across the rest of the financial year,Origin said it had contracted 3 million tonnes so far,“around half of the target of 5 to 6 million tonnes”.

Origin chief Frank Calabria said it had been an “extraordinarily challenging quarter” for the energy industry globally and in Australia.

“I’m very pleased with how the business has helped meet the energy needs of customers,” Calabria said.

Origin Energy CEO Frank Calabria has praised the company’s performance.

Origin Energy CEO Frank Calabria has praised the company’s performance.Nick Moir

Elsewhere in Origin’s operations,revenue from its gas venture in Queensland more than doubled in the past 12 months,as the fallout from Russia’s invasion of Ukraine deepens a global energy crunch and intensifies competition for oil and liquefied natural gas (LNG) cargoes.

Australia Pacific LNG,which Origin jointly owns with US-based ConocoPhillips and China’s Sinopec,reached $9.2 billion in revenue for the year. Origin’s cash distribution was $1.6 billion.

Calabria said APLNG had preformed “very strongly” at a time of high commodity prices,while boosting supplies to Australia’s domestic market.

“In addition,Australia Pacific LNG has continued to play an important role in providing secure supply to customers on Australia’s east coast,increasing gas supply to the domestic market by 4 per cent in the June 2022 quarter” Calabria said.

Origin has not sold any uncontracted LNG cargoes on the spot market since April.

However,Harriet Kater,the head of climate at the Australasian Centre for Corporate Responsibility (ACCR),a shareholder activist group,accused Origin of prioritising “cashing in” on higher prices caused by the Russia-Ukraine war above supporting Australia’s energy needs.

“Whilst Origin appears eager to demonstrate an increase in domestic gas supply in the fourth quarter,APLNG’s financial year 2022 exports increased by 136.2 petajoules,whilst domestic supply increased by a paltry 0.6 petajoules,” Kater said.

Macquarie analyst Ian Myles said APLNG had achieved better-than-expected prices in the fourth quarter. However,he said the prospect of the federal government intervening in the gas market and considering holding back some volumes for domestic use only presented a risk to the business.

Origin on Friday also recorded a non-cash impairment of $2.2 billion for the past financial year following a $4.4 billion uplift in the value of its derivatives. Analysts described the impairment as a technical accounting issue,which did not reflect the value or performance of the underlying business.

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Nick Toscano is a business reporter for The Age and Sydney Morning Herald.

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