AGL quits coal seam gas, to focus on “energy evolution”

Australia’s biggest energy utility, AGL, has announced that it is quitting gas exploration and production as part of a move to accelerate the company’s focus on the “evolution” in the energy industry.

The decision by AGL, founded as the Australian Gas Light Company in 1837, means that it will drop its controversial coal seam gas projects in the Gloucestor Basin and ultimately it operations near Camden in NSW – to the relief of environmental groups and local communities who had campaigned against them.

AGL will take a $795 million pre-tax write down from its withdrawal, and in the case of Gloucestor, avoid around $1 billion in costs of drilling up to 300 coal seam gas wells. Given the fall in gas prices, it would probably not have made a profit on the venture.

The decision does not mean that AGL will exit the gas industry entirely. It will still operate gas-fired power generators, and sell gas to customers, but it will source its needs from other provides, mostly from the large natural gas reserves in southern Australia.

Managing director Andrew Vesey says the decision reflects the volatile nature of commodity markets. Analysts also suggest it was a recognition that AGL’s gas assets were relatively high costs and were not premium quality in a market for low oil and gas prices.

AGL is just the latest in a number of Australian companies that have written down the value of the oil and gas assets. BHP Billiton has led the charge with a write down of $10 billion of its US shale gas assets, but Woodside and Santos have also announced large write downs and analysts expect Origin Energy to do the same.

The question for many in the analyst community is if, and when, the major Australian energy companies decided to follow international rivals and split their assets between the old, centralised fossil fuel generators to a utility model focused on solar, storage, electric vehicles and smart grids.

Analysts suggest it may be too soon in Australia. Despite the massive take up of rooftop solar, and the expectation that battery storage will follow, the big utilities have a tiny share of this market, although they have started to rapidly boost their interest.

Vesey mentioned that AGL’s focus was now on “transforming the business to capitalise on the evolution occurring in the energy sector and to meet its customers’ rapidly changing needs and expectations.”

This was not spelt out in the media statement, but is an obvious reference to the push to solar and storage, and getting “behind the meter” in servicing customer needs inside the house, rather than just at the meter hung outside.

AGL is now pushing its image to new technology.  However, AGL’s plans in this area have been set back by the loss of the head of its New Energy division, Marc England, who is taking up a role as head of New Zealand utility Genesis.

Its web page focuses on its credential in building the largest solar PV plants in the country, and having the biggest portfolio of renewable energy sources. There is no mention that it is also the largest owner of coal generation in the country.

AGL has said that it will not build new coal generation – unless it is is fully abated, which means carbon capture and storage at competitive rates. It has said it will exit coal completely by 2048, although it has been dropping hints recently that it could bring this forward.

The exit of its gas exploration and production assets will affect operations in NSW and Queensland, where the Moranbah, Silver Springs and Spring Gully assets will be written down. In NSW, the Camden coal seam gas operation will be shut down by 2023, 12 years earlier than expected.

Environmental groups hailed the move and said it was testament to the power of community action.

“This is fantastic and long-overdue news for the embattled Gloucester community, which has struggled for years to stop this project,” said Steve Phillips, Lock The Gate’s regional coordinator for the Hunter and Central Rivers.

“It’s a shame it was an economic decision from the company – rather than sensible policy from the NSW Government – that saved Gloucester from coal seam gas, but local residents will be thrilled with the decision regardless.

Josh Creaser, frontline projects coordinator with 350.org Australia, said the announcement was reward for persistent in the face of “reckless fossil fuel projects”, but noted AGL still had a lot of work to do.

“If AGL is serious about tackling climate change, they must now come up with a plan to close down their coal fired power stations in the coming years, not the coming decades,” he said in a statement.

“It’s time for AGL to to put words into action and get to work building the transition to a truly clean energy future.”