AGL Energy Limited has announced that it will, in a 50/50 joint venture with Arrow Energy NL, acquire the gas merchant and pipeline businesses of the Queensland Power Trading Corporation from the Queensland government for a total purchase price of A$268 million plus transaction costs of approximately A$12 million (total initial cost to AGL of A$140 million).

While the gas pipeline component of the transaction represents the majority of the acquisition cost, AGL said that it does not consider the asset as core to its long-term strategy and intends to sell its share of the pipeline before the end of the current financial year. Ahead of the sale, AGL and Arrow will, however, optimize the asset and contractual mix between the pipeline and the existing upstream gas business to enhance the value of that upstream business.

AGL will initially fund its share of the acquisition price from cash reserves and debt facilities. Following the sale of the pipeline, the net cost of AGL’s investment is expected to reduce to less than A$40 million.

Michael Fraser, managing director of AGL, said: The Queensland Power Trading Corporation (Enertrade) gas merchant business is a natural extension of our existing Moranbah coal seam gas joint venture with Arrow as Enertrade is the major customer for gas produced at Moranbah. This deal will allow AGL and Arrow to capture more of the value from gas produced at Moranbah.

Importantly, AGL will also gain the dispatch rights to the 230MW Yabulu combined cycle power station located in Townsville and connected to the National Electricity Market. This will lift AGL’s generating dispatch capacity in Queensland to in excess of 500MW when combined with the recently acquired Oakey power station dispatch rights.