AGL Expects Gas Project Decision Delay Amid Fracking Concern

AGL Energy Ltd. (AGK), Australia’s second-largest electricity retailer, said a decision to go ahead with its Gloucester coal-seam gas project may be delayed until next year as the company faces opposition to fracking.

The timing depends on New South Wales government approval for a well-testing program, Managing Director Michael Fraser said today by phone after Sydney-based AGL posted a 27 percent drop in first-half profit. It had been aiming for a decision in the third quarter of 2014, according to an October presentation.

“The timelines on that project are under pressure,” he said. “While we’re confident that it’s moving in a positive direction through the government, the reality is the timetable is subject to the government approval.”

As part of the Gloucester development, AGL is planning a four-well hydraulic fracturing, or fracking, program, using a drilling technique that has sparked environmental concerns. AGL is seeking to extract gas from coal deposits in New South Wales to help decrease a reliance on supplies from outside the nation’s most-populous state and address a looming gas shortage.

AGL fell 0.2 percent to A$15.95 at the close, while Australia’s benchmark index rose 0.1 percent.

AGL faces a “gross breakdown of trust” in the company from some local residents concerned that coal-seam gas development and fracking will harm the environment, according to a Feb. 20 report from Credit Suisse Group AG. AGL’s fracking plan may face a stricter level of review, the report found.

New Supply

The Gloucester coal-seam gas project has the potential to supply more than 15 percent of New South Wales’s gas needs by 2017-2018, according to the company’s website.

“My expectation is that a final investment decision is probably going to be pushed into next year,” Fraser said. Still, he said the government may move faster than expected.

In Queensland, AGL expects to more than triple gas sales to customers in the 12 months through June 2015 compared with the prior year, the company said today in a presentation. The company has negotiated recent contracts at about A$10 ($9) a gigajoule and is in discussions to increase supplies to the companies building natural gas export projects on the Queensland coast as well as industrial buyers, Fraser said.

AGL has addressed the competition regulator’s concerns that its agreement to buy New South Wales state-owned power plants for A$1.51 billion would probably hurt competition, Fraser said. The purchase of Macquarie Generation depends on approval by the Australian Competition & Consumer Commission.

“The concerns they’ve expressed aren’t supported by the facts,” Fraser said. “I’m very confident our response has comprehensively addressed the issues.”

To contact the reporter on this story: James Paton in Sydney at jpaton4@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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