Origin reports LNG earnings windfall, but is still scratching around for coal

Origin Energy has given its best impression of a dysfunctional energy market this week, delivering a 2022 financial year result marked by windfall gains from gas generation on the one hand, and a multi billion-dollar hit from the market crisis on the other.

Origin on Friday reported a number of positives for the company to come from an “extraordinarily challenging” year, including electricity sales volume up 6% on financial year 2021, and a 13% increase in business volumes from “net customer wins.”

But gas was the gen-tailer’s biggest winner, with final quarter output from Origin’s gas generation portfolio up 82% from the previous quarter, in time to cash in on an east coast spot gas price of $29/GJ – $10/GJ higher than the March 22 quarter.

Origin reports a whopping 103% increase in its Australia Pacific LNG revenue, year-on-year, thanks to a revenue increase of 113% primarily driven by higher global oil prices and higher spot LNG prices, and an increase in domestic revenue of 47%.

“In an extraordinarily challenging quarter for the energy industry globally and in Australia, with elevated commodity prices and significant power supply challenges across the NEM, I’m very pleased with how the business has helped meet the energy needs of customers,” said CEO Frank Calabria.

But the situation in the domestic electricity market was a different story.

As the Origin report notes, “exceptionally high” gas and electricity prices in the June quarter of the 2022 financial year were driven by a combination of factors, including coal generator outages, colder temperatures increasing customer demand and higher international coal and gas prices.

Origin has been caught up because it has struggled to find enough fuel for its Eraring black coal-fired power plant in NSW, the biggest in the country at 2.8GW, which is now scheduled to be retired in 2025.

Origin confirmed last month that Hunter region flooding and a global supply crunch meant it could not source enough coal to keep plant operating at anywhere near full capacity.

On Friday, Calabria assured investors that Origin had “made good progress” addressing these issues, aided by strong support from coal suppliers, rail network providers and from the NSW government.

But that good progress finds the gen-tailer just half way to its target of 5 to 6 million tonnes of coal that it needs to contract for the 2023 financial year. And it is likely to have to pay a hefty price for those supplies.

Origin also reported on Friday that the hedging activities it uses to manage exposure to high gas and wholesale electricity prices delivered a “non-cash impairment” of roughly $2.2 billion for the year.

This $2.2 billion, the report says, will impact goodwill only and “does not reflect the performance of the business.” But it shows that even a seasoned campaigner does not come out of a market crisis of this level unscathed.

“Unlike its pure play peers, Origin has been battered about as a fossil fuel customer at Eraring, having recently disclosed an expected plunge in earnings for its Energy Markets business,” says Harriet Kater, a climate lead at the Australasian Centre for Corporate Responsibility (ACCR).

“For now, the gas business is carrying the utility business but questions need to be asked how long this can be sustained in a decarbonising economy. At least there are transition pathways available for electric utilities.”