The APA Annual Report and Sustainability report is of vital importance to CTP since Gas Haulage costs related to their pipelines will be a major factor influencing CTP’s future profitability.
Here we have an excellent overview from the Pipeline owner/operator.
Page 16 is well worth reading and contains this graphic.
The following is an extract at Page 30 dealing with risks that IMO provides an excellent summary of the state of pipeline regulation.
I am constantly doing my best to look at the whole industry and relate CTP’s plans to industry developments and trends.
I earnestly call on CTP to articulate their industry wide view to assist shareholders in appreciating the true value of the company.
Page 30 Extract… Key risks
Economic regulation
APA has a number of price regulated assets and investments in its portfolio. Regulatory pricing periods generally run for five years and reflect the regulator’s determination of, amongst other matters, APA’s projected operating and capital costs, and weighted average cost of capital. The price regulation outcomes determined by the Australian Energy Regulator or Economic Regulation Authority (for Western Australia) under an access arrangement process for a full regulation asset may adversely affect APA’s revenue in respect of that asset.
A number of APA’s assets are subject to light regulation which, while not a price regulation regime, does enable the regulator to determine any disputes with customers on price and other terms of access. In addition, under the National Gas Law, any person may make an application that an unregulated pipeline becomes “covered” and subject to economic regulation, which may adversely affect APA’s economic position. During the year, COAG established the GMRG to implement domestic gas market changes, following industry reviews by the ACCC and the AEMC. The GMRG has an extensive work program to undertake detailed design, consultation and implementation of the agreed market interventions over the next two years. The most significant elements of the changes are the introduction of an information disclosure and binding arbitration regime for access to unregulated pipelines, and the
proposed introduction of day ahead auctions for contracted but un-nominated pipeline capacity.
The information disclosure and commercial arbitration regime came into effect on 1 August 2017. There is uncertainty as to the impact on our business of the regime. There is a risk that prices for pipeline services and therefore revenues, will reduce as a result of implementation of the regime adversely affecting APA’s business.
The final design of the capacity auction reform initiative has not yet been finalised but there is a risk that the final design may adversely affect APA’s business. Auctions of capacity may reduce the volumes of ancillary services sold by APA. In addition, to the extent that auction prices are less than the price of the ancillary services, APA’s revenue may be adversely affected.
The Australian Energy Market Commission has released its final report on the review of the Victorian Declared Wholesale Market. The report contains recommended changes to the structure of the Victorian wholesale gas market, which will require amendment to the National Gas Rules. These amendments may change the business risk profile of the Victorian Transmission System.
Bypass and competition risk
Bypass and competition risk occurs when a new transmission pipeline offers gas transportation services to the same end market serviced by existing pipelines. If a bypass risk eventuates, APA’s future earnings may be reduced if customers purchase gas transportation services from new pipelines rather than from APA’s existing pipelines. Competitive pressures including changes in market conditions, new market entrants and increased competitive cost pressure, could impact our customer relationships and have a unfavourable effect on APA’s financial performance. Gas demand risk Reduced demand for gas and increased use of gas swap contracts by customers may reduce the future demand for pipelinecapacity and transportation services and may adversely affect APA’s future revenue, profits and financial position.
Gas supply risk
A long-term shortage of competitively priced gas, either as a result of gas reserve depletion, allocation of gas to other
markets, or the unwillingness or inability of gas production companies to produce gas, may adversely affect APA’s contracted revenue and the carrying value of APA’s assets.
Best Regards
OGP
CTP Price at posting:
9.4¢ Sentiment: None Disclosure: Held
