Much is made of Australia’s potential as an exporter of liquefied natural gas (LNG) in a post-Fukushima world still hopeful of transitioning to cleaner-burning technologies for power generation. In fact we make a lot of this potential in this month’s In Focus feature, Australia: It’s A Gas, Gas, Gas.

AE Portfolio Conservative Holding AGL Energy Ltd (ASX: AGK, OTC: AGLNF, ADR: AGLNY), now Australia’s biggest provider of electric power, with more than 3 million customers in four states, continues to make the case for natural gas’s domestic applications.

AGL will have LNG exposure, a fact most recently borne out by its May 11, 2012, announcement that the Government of New South Wales Planning Assessment Commission had approved its plan to build the Newcastle Gas Storage Facility at Tomago, near Newcastle.

The Newcastle facility, expected to be operational in 2015, will include a processing plant to convert pipeline natural gas into LNG. This processing plant will be capable of processing 66,500 metric tons of LNG per annum. Also on site will be an LNG storage tank with capacity of 33,000 metric tons, equivalent to 1.5 petajoules of natural gas, and an associated containment are as well as a regasification unit to convert stored LNG back into natural gas.

This AUD310 million project is designed to serve as many as 700,000 businesses and consumers in New South Wales. It’s one more invest-to-grow effort that continues to make AGL one of the best long-term wealth builders in Australia and the world.

Over the last five years–from mid-June 2007 through Wednesday, Jun. 13, 2012, a period encompassing the 2008-09 period known Down Under as the Great Financial Crisis–AGL Energy has generated a total return in US dollar terms of 47.83 percent, besting losses of 4.57 percent for the S&P/Australian Securities Exchange 200 Index, 15.87 percent for the MSCI World Index and 4.32 percent for the S&P 500 Index.

Since we included it among our “8 Income Wonders from Down Under,” the charter members of the AE Portfolio, AGL is up 16.92 percent, better than the Australian benchmark’s 11.33 percent US dollar total return, the MSCI’s 9.67 percent and the S&P 500’s 14.93 percent.

Management hasn’t cut the dividend in the half-decade-plus the company’s been making regular payouts. But each final dividend has been larger than the preceding one since it began paying in March 2007. Although the interim dividend declared Feb. 24, 2012, and paid to shareholders on Apr. 5 was flat with last year’s interim dividend, management’s forecast for a “strong” second half of fiscal 2012 (end Jun. 30, 2012) bodes well for another increase in late August.

AGL, which earns a perfect “6” AE Safety Rating because of its low payout ratio, low debt, solid dividend history and lack of exposure to resource prices, is able to maintain its consistent performance because it owns and operates one of the best-diversified portfolios in the electric utility industry and consistently adds to its asset base via advantageous transactions.

This latter point was reinforced with AGL’s near-complete assumption of full ownership of the Loy Yang A power plant in the state of Victoria. This deal, which was announced concurrently with fiscal 2012 first-half results in February and was met with initial skepticism, has great potential that has recently begun to be recognized by the market.

On May 24 that the Australian Competition and Consumer Commission (ACCC) green-lighted the deal, in which AGL will buy out for AUD448 million the 67.5 percent of Loy Yang A and an adjacent coal mine that it doesn’t already own from Great Energy Alliance Corp (GEAC), whose shareholders include troubled Tokyo Electric Power Co, which has a 32.5 percent stake, Thailand’s Ratchaburi Electricity and Australian superannuation funds.

The Federal Court of Australia subsequently removed certain undertakings related to limitations on its ownership stake in GEAC. Management expects completion of the transaction on or about Jun. 30.

AGL has already raised AUD650 million through an offering of subordinated notes to help fund the deal. It also issued new shares at AUD11.60 each to raise AUD900 million through fully underwritten institutional and retail entitlement offers.

AGL Energy has already raised AUD356.1 million through the institutional stage; the offer to retail shareholders (not including US-based owners) is open until Jun. 19 and aims to raise AUD543 million. The cash raised will help it address Loy Yang’s AUD2.5 billion debt load.

Loy Yang, which accounts for about 30 percent of Victoria’s electric power, will increase AGL’s owned or controlled generation by approximately 33 percent, to 6,000 megawatts (including development-stage projects) and will help it equal AE Portfolio Aggressive Holding Origin Energy Ltd (ASX: ORG, OTC: OGFGF, ADR: OGFGY) as Australia’s biggest electricity company.

AGL CEO and Managing Director Michael Fraser described Loy Yang as “a high-quality generation asset” and its attached coal mine as “a long-term fuel resource.” Management forecasts the acquisition will be accretive to underlying earnings per share beginning with fiscal 2013. Loy Yang produced a loss of AUD4.9 million for the six months ended Dec. 31, 2011, compared with a profit of AUD400,000 during the first half of fiscal 2011.

Loy Yang is expected to remain one of the lowest-cost generators in Australia’s national electricity market thanks to cheap brown coal and AUD1 billion in free carbon permits.

There are a number of reasons why a big investment brown coal generation makes sense for AGL even though the carbon tax is coming, apart from the fact that management says the deal will be accretive in fiscal 2013 and generate a lot of incremental cash flow.

It gets a major position in Victorian power generation, about 30 percent of the industry. It increases its own baseload capacity by almost a third. It will own one of the lowest-cost baseload generators in the country, even taking into account the carbon tax.

Most importantly, it will have a better balance between the generating capacity it controls and its retail commitments, significantly reducing the risk of a mismatch. Vertical integration of nearly 60 percent of its business also reduces overall risk.

Despite the far higher carbon intensity of brown coal relative to the black coal, which is the major source of baseload power in NSW and Queensland, Loy Yang A is so low on the cost curve that even with the carbon tax it will be among the country’s lowest-cost generators.

That’s going to become an even more valuable position over the next few years. The soaring demand for thermal coal from Asia, and China in particular, has forced up the price of exportable coal. As contracts with coal producers written in a different era continue to roll off, black coal-fired generators are facing very steep increases in their fuel costs.

Once the Queensland coal-seam-gas-fed export LNG plants are operating beginning around 2015 something similar will happen to gas prices, which have already been rising. Exporting gas will effectively import international prices–which are substantially higher than existing domestic gas prices–into the domestic energy market.

Despite the fact that it’s a very dirty fuel (although Loy Yang A has the lowest carbon intensity of the Victorian generators) the lower-cost brown coal generators will remain relevant and competitive within the energy market whether there’s a carbon price or not.

In addition to Loy Yang, AGL will also build two solar projects in New South Wales at a cost of AUD450 million, AUD194.6 million of which will come from federal and state government grants. AGL and engineering and construction concern First Solar Australia Pty, a division of US-based First Solar Inc (NSDQ: FSLR), will build a 106 megawatt photovoltaic project at Nyngan and a 53 megawatt project at Broken Hill.

Construction on the projects will begin in fiscal 2013, with projected completion dates in fiscal 2015. The Australian federal and the New South Wales state government are kicking in cash to help AGL defray risks associated with doing “first-of-a-kind” work in the country; these facilities represent a new opportunity to bring industrial-scale energy to market Down Under.

AGL anticipates receiving approval for its proposed Dalton Power Station sometime in June 2012. Dalton, a gas turbine facility designed to act as a “peaking” power station, will have initial capacity of 250 megawatts to 780 megawatts, with ultimate capacity of 1,500 megawatts.

As for results for the first six months of fiscal 2012, AGL reported underlying profit of AUD232.9 million, up 3 percent from the AUD226.2 million earned during the prior corresponding period. Strong results from core Retail Energy and Merchant Energy units were partly offset by lower wind-farm development fees and reduced gas-storage fee income.

Retail Energy–the unit that serves residential and small-business customers, about 3.4 million of them–contributed AUD178.2 million to operating earnings before interest and taxation (EBIT) for the first six months of fiscal 2012 (ended Dec. 31, 2011), up 12 percent from the prior corresponding period.

Management executed on its key priority by adding 89,000 retail customers in New South Wales during the period. AGL also maintained its electricity and gas customer bases in all other Australian states. Dual-fuel customers (electricity and gas) increased by 80,000 from Jun. 30, 2011, and now total 1.55 million. Customer churn across all markets was 16.1 percent, 4.7 percentage points below the industry average of 20.8 percent.

Merchant Energy–which develop, operates and maintains AGL’s power generation assets–posted operating EBIT for the half year was AUD248.8 million, up 11.1 percent over the prior corresponding period.

Additional generation from new assets (including renewables), increased hydro capacity and effective portfolio management all contributed to the strong result. Wind farms owned and operated by AGL performed well, generating 737,900 megawatt-hours at an average capacity factor of 34.6 percent.

AGL’s portfolio of generation assets currently has a “carbon intensity” approximately 50 percent below the average across the Australia’s National Electricity Market, reflecting the substantial investment AGL has made in building renewable energy assets. In fact it’s Australia’s biggest owner/operator of renewables.

Upstream Gas–the unit that manages AGL’s investments and operations in gas exploration, development and production as well as its gas storage facilities–reported operating EBIT of AUD1 million, down from AUD17.3 million a year ago. Total proven plus probable gas reserves increased by 87 petajoules since Jun. 30, 2011, to 2,176 petajoules.

Major accomplishments during the half year include the Oct. 6, 2011, announcement that AGL had entered into a 50-50 joint venture with fellow Conservative Holding APA Group (ASX: APA, OTC: APAJF) to build the 242 megawatt Diamantina Power Station in Mt. Isa, Queensland. Diamantina is expected to come online by Jun. 30, 2014. AGL will supply gas to the station for 10 years.

AGL forecast that Retail Energy will continue to benefit from improved operating efficiencies, below-market average customer churn rates and the continued growth in electricity customer accounts in New South Wales. In Merchant Energy, wholesale electricity costs are expected to be materially lower than in fiscal 2011 assuming no recurrence of extreme weather events experienced in February 2011.

Management also reiterated guidance for full-year fiscal 2012, for which it “anticipates further earnings growth in the second half.” AGL is on track to deliver fiscal 2012 underlying profit of between AUD470 million and AUD500 million.

AGL Energy, with the opportunistic acquisition of the remaining ownership shares of Loy Yang A now for all intents and purposes a done deal, is a buy under USD16 on the Australian Securities Exchange (ASX) using the symbol AGK, on the US over-the-counter (OTC) market using the symbol AGLNF or via its US American Depositary Receipt (ADR) which is worth one ordinary ASX-listed share and is traded on the US OTC market.

AGL’s fiscal year runs from Jul. 1 to Jun. 30. The company reports full financial and operating results twice a year; it typically posts first-half results during the third week of February, with full fiscal year numbers out in late August.

Interim dividends are usually declared in February along with first-half results. Final dividends are usually declared in August along with full fiscal-year results. The most recent interim dividend of AUD0.29 per share was declared Feb. 24, 2012; it was paid Apr. 5, 2012, to shareholders of record as of Mar. 7, 2012. Shares traded “ex-dividend” on this declaration as of Mar. 1, 2012.

The final dividend of AUD0.30 in respect of fiscal 2011 second-half results was declared Aug. 25, 2011. It was paid Sept. 29, 2011, to shareholders of record on Sept. 8, 2011. It traded “ex-dividend” as of Sept. 2, 2011.

Dividends paid by AGL are “qualified” for US tax purposes. The Australian government withholds 15 percent, based on the US-Australia tax treaty on double taxation. The two countries have not taken the step of eliminating withholding from dividends paid in respect of shares held in a US IRA, as have the US and Canada.

Among the analysts who cover the stock seven rate it a “buy” according to Bloomberg’s standardization of brokerage house recommendation terminology, while five rate the stock a “hold” and zero say “sell.” The average target price is AUD16.04, with a high of AUD16.85 and a low of AUD15.01.