AGL managing director Paul Anthony said this was a strategic acquisition for AGL in providing a strong presence in one of Australia's fastest-growing energy markets.

“The Moranbah Gas Project will complement AGL's existing interest in the proposed Papua New Guinea Gas Project and associated PNG-to-Queensland gas pipeline, as well as the proposed Townsville Power Station," he said.

“This project firmly positions AGL to capitalise on the significant growth opportunities offered by the Queensland market, particularly in the Townsville-Gladstone corridor."

The Moranbah Gas Project is forecast to produce about 16 petajoules in the 2006 contract year, about 12% of the Queensland gas market. Financial close on the transaction is expected by July/August.

Anthony said the acquisition of the gas project was consistent with AGL's strategy of diversifying its wholesale gas portfolio, which now includes gas sourced from Moomba in South Australia, the Gippsland Basin in Victoria, other CSM sources in Queensland and the Sydney Basin, as well as proposed gas from PNG.

“A diversified wholesale gas portfolio is a key element of AGL's integrated energy company strategy and enables AGL to continue to supply competitively priced energy to customers in eastern Australia," he said.

Coal seam methane producer Arrow Energy says the entry of AGL into the Moranbah Gas Project is "very positive" for the future development of the project.

The current Moranbah partners are CH4 Gas and BHP Billiton, but CH4 is currently moving to merge with Arrow while BHPB has arranged to sell its stake in the project to AGL.

Arrow Energy managing director Nick Davies said AGL would bring extensive operating experience and marketing expertise to Moranbah.

“Whilst Arrow and CH4 recently made an offer for the BHP interest, we regard the sale to AGL as very positive for the future development of the Moranbah Gas Project," he said.

“The project is the sole supplier of natural gas into the Townsville market, with significant potential to supply the expanding Gladstone market in the future. AGL's entry has the potential to enhance the joint venture's gas market opportunities with AGL's proposed 370MW gas-fired Townsville Power Station and possible joint initiatives targeting the central north Queensland region where there are significant future industrial developments planned."

Davies also said AGL's move into Moranbah would boost the Arrow-CH4 merged entity's growing list of quality JV partners, which already includes CS Energy, Beach Petroleum and, potentially, GAIL (India).

On completion of the current merger between Arrow and CH4, the merged company will continue as the operator of the Moranbah Gas Project.

The merger between Arrow and CH4 will see the combined entity become Australia's largest independent coal seam gas company in terms of market capitalisation and contracted gas sales.