Electricity company makes 'hedging' investment in gas sector

ERM disclosed the holding yesterday, which is believed to have been picked up around Metgasco's present share price. It closed trading yesterday at 32.5?, up 2?, valuing the company around $135 million.

"The investment in Metgasco is a hedge against rising gas prices," ERM Power's founder and the managing director, Philip St Baker, said. "It's been a bit under the radar.

"We've done a fair bit of due diligence. It has conventional and unconventional gas, which derisks the investment."

Analysts said the rising contention about coal seam gas, with concerns over access, had many investors on the back foot about investing in the sector, but, with its reserves of conventional gas, this gives Metgasco another string to its bow.

"The conventional gas exposure is of comfort," one analyst said.

Concerned about the prospect for rising gas prices in Western Australia, due to booming export liquified natural gas demand, ERM invested funds in two exploration plays there, which are now being developed.

"In Western Australia, gas prices have risen threefold in as many years," Mr St Baker said. "We're going to see rising gas prices on the east coast when export LNG projects come on line from 2014/15."

Several export LNG projects are being developed in Queensland.

Metgasco is developing gas reserves around Casino, in the far north of NSW. It is reviewing piping gas to the Brisbane market, exporting gas directly offshore from northern NSW or participating in a project to export gas through the port of Brisbane.

It earlier signed a memorandum of understanding with Liquified Natural Gas Ltd to supply gas to its export project planned for Gladstone, in central Queensland.

Recently, Santos launched an agreed bid for Eastern Star Gas, whose NSW reserves centre on Narrabri, in the state's north-west.