Australia's Origin Energy flags price pain as coal supply dwindles, shares tumble

June 1, 20221:38 AM UTCUpdated ago

Summary
Companies

Coal supply cut to Australia's biggest coal-fired plant
Origin hit by soaring coal, power purchase costs
Shares fall as much as 15%

MELBOURNE, June 1 (Reuters) - Australia's second-largest power producer Origin Energy (ORG.AX) withdrew its earnings guidance for the year to June 2023 on Wednesday, as it struggles to secure coal for a key power plant amid soaring spot energy prices, knocking its shares down 15%.

Origin's woes reflect the extreme volatility in Australia's energy market, fuelled by soaring global coal and gas prices in the wake of the Ukraine conflict and outages at local coal-fired power plants.

Origin has faced problems obtaining coal for its Eraring power station, the country's largest coal-fired plant, from its supplier Centennial Coal over the past year, and said the miner's output has "deteriorated significantly in recent weeks".

"The challenges with coal delivery to Eraring Power station are expected to persist into FY2023," Origin said.

"This is expected to result in a material increase in coal purchasing costs given high coal prices and continued exposure to high spot electricity prices."

Origin will have to replace coal supply at sharply higher prices while also cutting output from Eraring, exposing it to high spot electricity prices as it has to meet electricity demand from its customers.

Origin cut its Energy Markets division's underlying earnings guidance for the year to June 2022 by 27% at the midpoint, to between A$310 million ($223 million) and A$460 million, and withdrew its guidance for fiscal 2023.

Still, its gas business is benefiting from soaring global liquefied natural gas (LNG) prices, which are offsetting the pain in its energy markets arm.

Origin said it expected consolidated group underlying core earnings for the year to June 2022 to be around the mid-point of its original guidance range of A$1.95 billion to A$2.25 billion.

Origin shares were last trading down 11.7% at $6.05 in a firmer broader market.

($1 = 1.3914 Australian dollars)

Reporting by Sonali Paul; additional reporting by Riya Sharma; Editing by Rashmi Aich and Richard Pullin