Gas giant writes down gas processing plant as it weighs rapid decarbonisaton

Gas pipeline owner APA Group has flagged a major write-down in the value of its Orbost Gas Processing Plant, citing ongoing costs and gas processing issues at the troubled facility on Victoria’s east Gippsland coast.

In an ASX announcement on Thursday, APA said it was expected to recognise a non-cash impairment of approximately $249 million (pre-tax) to the Orbost Gas Processing Plant in its results for the period ending December 31, 2020.

APA said the impairment charge reflected “increased capital expenditure and reassessment of the plant’s future cash flows” since it came online in May of 2020, to process Bass Strait gas for the supply of Australia east coast market.

APA, which has a $22 billion portfolio of gas pipelines and distribution infrastructure, bought the east Gippsland plant in late 2017 and spent the better part of the following two years giving it an extensive upgrade in preparation for processing the output of Cooper Energy’s Sole gas field, estimated at 25 petajoules a year over eight years.

This has not gone to plan, however, for either company – Cooper Energy posted a $23.1 million interim loss earlier this week. But in its statement on Thursday, APA said a “root cause analysis” was underway to address processing issues to support a reliable and sustainable production rate.

Meanwhile, this analysis might help inform the company’s much more weighty assessment of what decarbonisation of the energy sector may mean for its business, as it faces the prospects of more than $20 billion in assets becoming stranded.

As RenewEconomy reported in August of last year, APA told investors it would soon deliver a report on what the company might look like under a rapid decarbonisation scenario – scenarios that look much more promising for competing technologies like battery storage than they do for gas.

Over the last few years, APA has expanded its investments into the renewable energy space, including the development of the combined 100MW Emu Downs solar and wind farm farm, the 150MW Badgingarra wind and solar project and the 100MW Darling Downs solar farm.

It is a portfolio that amounts to almost 500MW of wind and solar capacity, but with a combined value of $750 million, it still represents a small proportion of the company’s overall asset base.