The Energy Infrastructure segment includes the interconnected energy infrastructure footprint across the mainland of Australia and includes gas transmission, gas compression and storage assets and a number of other wholly owned energy infrastructure assets.
During the financial year, the Ethane Pipeline and the Diamantina and Leichhardt Power Stations were transferred into this segment from the Energy Investment segment, as APA gained full ownership of these assets. These acquisitions were in line with APA's strategy to continue to invest in energy infrastructure that is underpinned by long term contracts from highly creditworthy counterparties.
This segment contributed 92.5% of group revenue (for continuing businesses, excluding pass-through) and 94.2% of group EBITDA (for continuing businesses and before corporate costs) during the financial year. Revenue (excluding pass-through revenue) was $1,528.6 million, an increase of 54.9% on the previous year (FY2015: $987.1 million). EBITDA (for continuing businesses, before corporate costs) increased by 62.2% on the previous year to $1,335.6 million (FY2015: $823.6 million). The majority of revenues in the Energy Infrastructure segment is derived from either
regulatory arrangements or long term capacity-based contracts.
Regulatory arrangements on regulated assets are reviewed every five years. A national regulatory regime includes mechanisms for regulatory pricing and is encapsulated in the National Gas Law and National Gas Rules. The economic regulation aspects of the regime apply to most gas distribution networks and a number of gas transmission pipelines in Australia.
The regime provides for two forms of regulation based on a pipeline's relative market power - full regulation and light regulation. For assets under full regulation, the regulator approves price and other terms of access for standard ("reference") services as part of an access arrangement process, such that the asset owner has a reasonable opportunity to recover at least the efficient costs of owning and operating the asset to provide the reference services. Access arrangement periods usually run for five years. For assets under light regulation, contractual terms (including price) are negotiated between the service provider and customer with recourse to arbitration by the regulator in the absence of
Contracted revenues are sourced from unregulated assets and assets under light regulation as well as assets under full regulation. Contracts generally entitle customers to capacity reservation, with the majority of the revenue fixed over the term of the relevant contract. There is typically a small portion of the contract subject to throughput volume. The split between capacity charge and throughput charge differs between contracts and generally ranges from 85%/15% to 100%/0%.
During the financial year, 75% of Energy Infrastructure revenue (excluding pass-through) was from capacity reservation charges from term contracts, 6% from other contracted fixed revenues and 7% from throughput charges and other variable components. Given the dynamic east coast gas market, there were additional revenues from provision of flexible short term services, accounting for around 2.0%. The portion of APA's revenue that is regulated has decreased to about 10% of FY2016 Energy Infrastructure revenue.
FY2016 REVENUES BY CONTRACT TYPE
APA1 PIPELINES BY REGULATION TYPE
The increase in FY2016 earnings for Energy Infrastructure was primarily due to the full year contribution of the Wallumbilla Gladstone Pipeline (acquired June 2015), approximately seven months’ contribution from the Eastern Goldfields Pipeline (commissioned November 2015), three months' EBITDA contribution from the Diamantina and Leichhardt Power Stations (acquired March 2016) and approximately two and a half months' EBITDA contribution from the Ethane Pipeline (acquisition completed June 2016) as well as contributions from various other expansions that commissioned during the period.
ENERGY INFRASTRUCTURE REVENUE BY STATE
ENERGY INFRASTRUCTURE EBITDA BY STATE
ENERGY INFRASTRUCTURE EBITDA BY PIPELINE
Note:The charts above exclude discontinued operations previously accounted for within Energy Infrastructure, including earnings from Allgas Networks and Moomba to Adelaide Pipeline.
APA manages its counterparty risk in a variety of ways. One aspect is to consider customers' credit ratings. During FY2016, around 94% of revenue was received from investment grade counterparties. Diversification of customer base is another - during FY2016, 56% from energy sector customers (includes BG Group, on the Wallumbilla Gladstone Pipeline in particular); 29% of revenue was from customers in the utility sector; 12% from resources sector customers; and 3% from industrial customers. Revenues by customer industry segment changed from the majority sourced from utility customers in FY2015 to the majority coming from energy customers in FY2016, reflecting the impact of the long
term contracts on the Wallumbilla Gladstone Pipeline.
FY2016 ENERGY INFRASTRUCTURE REVENUES BY COUNTERPARTY CREDIT RATING
FY2016 ENERGY INFRASTRUCTURE REVENUES BY CUSTOMER INDUSTRY SEGMENT
APA's Integrated Operations Centre ("IOC") in Brisbane is now the operations control centre for APA’s transmission pipeline assets across the country. Centralised control at APA's IOC, which houses a multi-disciplinary team of pipeline controllers, engineers, technicians and commercial operations specialists, has enabled more agile implementation of customer needs and allows APA to ensure that gas is moved to where it is required by customers in the most timely and efficient manner. The IOC, coupled with our unique customer management system, APA Grid, allows APA to offer innovative services to customers.
Supporting LNG plant swings One of the LNG projects wanted to borrow a sizeable amount of gas, then repay that loan as well as park an additional quantity of gas over
the following week.
APA's team at the IOC reviewed the request in light of:
conditions at the time;
forecast operational conditions;
other customer requirements during this period; and
physical limitations of the APA Grid.
This facilitated avoidance of producers' well turndowns, unnecessary
flaring and meeting producers' production targets
East Coast Grid + Northern Territory APA's 7,500 plus kilometre integrated pipeline grid on the east coast of Australia has the ability to transport gas seamlessly from multiple gas production facilities to gas users across four states and the ACT, as well as to the export LNG market which has developed out of Gladstone. With the proposed construction of the Northern Gas Pipeline, APA’s Northern Territory assets will in the future be connected to the East Coast Grid.
During FY2016, APA purchased the remaining 50% stake in the Diamantina and Leichhardt Power Stations, adding further complementary assets to the East Coast Grid that will continue to enhance our service offering to our customers on the east coast of Australia.
Seamless and Flexible Services ensure continuity of energy supply
In FY2016, the South West Queensland Pipeline changed flow direction regularly to meet changing demand patterns
in southern states, driven largely by weather and electricity demand.
During the recent South Australian electricity crisis, APA helped facilitate the transportation of additional gas from
the northern markets into the South Australia market to ensure gas was available for power generation.
In one instance, within 24 hours of receiving an initial inquiry, APA had concluded the commercial arrangements,
implemented changes in the customer management system and was physically delivering gas for the customer.
In addition, APA’s Integrated Operations Centre anticipated an increased demand for gas in NSW and the Victorian
markets and configured the pipeline grid to ensure continuity of gas supply.
Bi-directional and multi-asset services across our interconnected East Coast Grid have meant that APA is now a "one-stop shop" for many energy producers and users. Customers have the flexibility to access 40 receipt points and approximately 100 delivery points across the East Coast Grid.
APA has continued to invest in pipeline assets and services, commencing hub services at the Moomba gas hub, in addition to the Wallumbilla hub, and providing enhanced information transparency to the market via APA’s website.
FY2016 saw a material increase in earnings from assets in Queensland. This was largely driven by acquisitions (full year benefit from Wallumbilla Gladstone Pipeline and three months contribution from Diamantina and Leichhardt Power Stations). This was partially offset by a slight reduction in volumes on the Carpentaria Gas Pipeline due to reduced deliveries to power generators off the pipeline, given that the Diamantina Power Station is a more efficient power station than the previous incumbent, Mica Creek.
Contracts from phase 1 of the Victoria Northern Interconnect expansion project contributed for the full financial year. Revenue generated from these contracts was recorded across NSW and Victoria. Revenue and EBITDA in Victoria decreased in FY2016 compared to last year, partially due to weaker volumes and non-recurrence of a one-off item during FY2015.
APA also purchased the remaining 94% of the Ethane Pipeline Income Fund that it did not own during FY2016. The Ethane
Pipeline now forms part of the Energy Infrastructure segment.
During the financial year, APA’s assets in the Northern Territory continued to perform to expectations.
In Western Australia, APA’s assets serve a variety of customers in the resources, industrial and utility sectors, mainly in the
Perth, Pilbara and Goldfields regions.
EBITDA from APA’s western assets for the financial year was up slightly by 2.3% compared with the previous
Connecting Australia to reliable energy
APA’s new 293km Eastern Goldfields Pipeline enables delivery of energy to the remote mining area of eastern Goldfields, 365 days of the year.
Switching from trucked in diesel to piped natural gas as the main fuel source for the AngloAshanti mines, means there are nearly 1,500 less annual diesel transportation movements to Tropicana and Sunrise Dam from the west coast of Western Australia annually.
This means less exposure to fuel price volatility, improved safety for the mine workers, longer term fuel reliability for the mines and lower greenhouse gas emissions.
The Eastern Goldfields Pipeline ("EGP"), which was commissioned in November 2015, contributed seven months earnings
from gas transportation agreements with AngloGold Ashanti. A new agreement to transport gas to the Gold Fields Limited
owned Granny Smith gold mine commenced in April 2016 and contributed three months earnings. With over 1,800km of
pipeline infrastructure able to securely and reliably transport gas to the Goldfields mining region, APA continues to work with
interested parties on other opportunities in the region.
Further, earnings from the Mondarra Gas Storage Facility increased due to additional capacity generated through an
injection/ withdrawal well enhancement project that was contracted to an existing customer. There continues to be interest
from the market for gas storage services, which enables customers to manage their gas portfolios effectively.
These increases were partially offset by a reduction in revenue from the Goldfields Gas Pipeline ("GGP") for the current
period, reflecting tariff reductions contained in the final decision by the Economic Regulation Authority ("ERA") on the access
arrangement for the GGP that was announced on 30 June 2016. Whilst cash flow was not impacted during the year due
to the timing of the final decision, the ultimate outcome has been provided for in the FY2016 results.
Storage capacity at APA's Mondarra Gas Storage Facility was increased during FY2016 with the completion of a new injection/withdrawal well.