AGL takes an earnings hit after being forced to buy expensive gas on the wholesale market

Gas well blowout. China Photos/Getty Images

AGL Energy today issued an earnings warning, saying it expects the contribution from its gas portfolio to be at least $100 million lower in the 2017 financial year than in 2016.

Australia’s largest privately-owned electricity generator says it had to buy more expensive wholesale gas than expected for the first quarter of 2017.

The company was pushed into the spot market by a squeeze on Queensland gas supply caused by safety issues at a key supplier project, other supply constraints in the gas market and increased demand at the AGL Torrens power station.

A short time ago, AGL shares were down 3.8% to $19.53, but still well up on the year low of $15.24.

“These recent gas market constraints are not expected to have any impact on AGL’s ability to meet customer gas demand,” the company says.

However, the unusually high prices coming from strong East Coast demand mean a $35 million negative impact on AGL’s pre-tax wholesale gas margin in the first quarter.

The rest of the $100 million shortfall will be from slimmer margins from wholesale gas sales, more consumer market competition and flat business customer margins.

AGL both buys and sells gas. In 2015, the gas portfolio generated revenue of $2.85 billion.

The energy supplier has made no change its 2016 full year guidance for underlying profit in the upper half of the range of $650 million to $720 million.

The company in February reported a statutory loss after tax of $449 million for the six months to December 2015.

Full year results are due to be released on August 10. It is targeting cost savings of $170 million and $1 billion in asset sales.

AGL last year announced it is is moving to be a fossil fuel-free business and won’t be building any more coal-fired power stations.

The company has been warning of rising power costs in Australia from more expensive gas, as this chart AGL used in an investor presentation in May shows:

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