APA (ASX:APA) share price falls despite expansion and new agreement

The APA Group (ASX: APA) share price is down today despite announcing two positive updates. We take a closer look at the release.

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The APA Group (ASX: APA) share price is down today despite the company announcing two positive updates.

At the time of writing, the energy infrastructure company’s shares are swapping hands for $9.98, down 0.30%.

Let’s take a closer look and see what APA released to the ASX.

East Coast Grid pipeline network expansion

According to its release, APA advised that it will begin expanding capacity on its East Coast Grid. This will link Queensland with southern markets. This follows a Final Investment Decision (FID) that was reached on the project due to strong customer demand for transportation capacity.

APA projected that without investing in the East Coast Grid, winter gas supply risks could arise from 2023. This was taken in the context of existing contract positions and available capacity, along with market forecasts.

The expansion will be undertaken in two stages, and incur a capital cost of around $270 million. Once completed, winter peak capacity will increase by up to 25% through additional works on both the Southwest Queensland Pipeline (SWQP) and the Moomba Sydney Pipeline (MSP). Both projects are critical in delivering gas from Queensland and the Northern Territory to southern markets.

The first stage of the East Coast Grid is expected to be finished within the first quarter of 2023. The second stage will be staged to meet customer demand, with completion towards the end of that same year.

APA noted that a potential third stage could be included, adding a further 25% transportation capacity. Engineering and design works are continuing to lay out the project scope and format.

APA CEO and managing director, Rob Wheals commented:

Through the investments we’re making today in the staged 25% expansion of the East Coast Grid, APA is playing a critical role in delivering additional energy security for southern gas markets ahead of forecast supply risks.

Today’s announcements reinforce the competitiveness of APA’s East Coast Grid and the critical role it plays in delivering for our customers and for the economy through cost effective, safe and reliable transportation of Australian domestic gas from northern gas producers to southern markets.

New East Coast Grid agreement

In further news, APA revealed that it has signed a new deal with a leading energy provider, Origin Energy Ltd(ASX: ORG).

The Gas Transportation Agreement (GTA) will see APA support Origin Energy’s needs in the southern markets. The contract is set to commence on 1 January 2023, before the completion of the East Coast Grid pipeline network expansion.

APA highlighted that under this agreement, Origin could potentially supply over half of New South Wales’ winter demand for gas.

The agreement will run for an initial 3-year period with an option to extend by a further two years. It is assumed that the initial deal will generate roughly $190 million in revenue for APA.

About the APA share price

The APA share price has fallen 10% since this time last year, however, year-to-date performance is marginally higher at 3%.

APA has a market capitalisation of about $11.8 billion, with more than 1.18 billion shares on issue.

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of APA Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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