GOT GAS: A tale of two extremes and taking the middle road

Energy watchers are well aware of Brookfield Asset Management and EIG Partners’ non-binding offer to acquire Origin Energy, which was recently revised downwards from $9 to $8.90 to reflect the “underlying exposure of Origin’s Integrated Gas assets”.

By this the bidders mean Origin’s upstream gas exploration and production assets and how they are exposed to the Federal Government’s push to strengthen the Safeguard Mechanism and efforts such as the $12 per gigajoule price cap on wholesale to keep energy prices under control.

That the revised offer represents a relatively miniscule reduction of just 1.1% from its initial offer is especially telling given the consortium was reportedly seeking a bigger discount.

It also seems to suggest that despite Santos managing director Kevin Gallagher’s concerns that the reforms would impact on investments, they might actually be manageable.

Gallagher might be realistic enough not to be calling for a complete lack of regulation, but he certainly seems to prefer having less regulation on fossil fuel companies, though he does make a good point about the need for certainty.

At the other end of the spectrum are the Australian Greens – leveraging their key position in the Senate – threatening that they will only back the Safeguard Mechanism if the Albanese Government bans new coal and gas projects.

This all or nothing approach was quickly dismissed by Energy Minister Chris Bowen who said that the government would not agree to ban all projects but was willing to negotiate further.

It does appear that the Greens might be willing to at least be open to negotiations given their leader Adam Bandt noted that the position was an “offer” and not an ultimatum. Though exactly what he means by that is open to interpretation.

Taking the middle road on gas

It is clear why the industry would prefer for there to be a minimum of regulations; after all, it would allow them to maximise profits and draw investment.

Likewise, the Greens stance is understandable. A ban on new coal and gas is entirely in line with the party’s staunch opposition to fossil fuels of any kind.

However, neither position is realistic, something which the Australian Government clearly recognises.

Resources Minister Madeline King recently told parliament that while the Government was keen to see increased renewables activity as it progressed Australia towards net zero emissions by 2050, it recognised that gas would still be needed for several years during the transition.

And while the International Energy Agency has warned that the world must stop investing in new fossil fuel power plants, Australia’s domestic gas fields appear to be declining faster than they could be replaced by renewable sources – which tend to displace coal-fired powered in the first place.

The Government has thus far declined to exercise the Australian Domestic Gas Mechanism, which could increase gas supply by limiting gas exports during periods of shortfall, necessitating then that new sources of gas supply be brought on stream.

Likewise it has opted for the gas cap to bring prices under control, which has sent the industry into a tizzy, though the minor impact on Origin’s takeover offer certainly indicates that the impact on investment simply might not be as drastic as they fear.

Regulations such as the Safeguard Mechanism are also essential steps towards achieving net zero emissions in a practical manner.

This would require making a deal with the Greens that would undoubtedly require Labor to make concessions.

How this might play out is anyone’s guess. Both sides will have to give way in some way and while the Greens might not get all they want, the absolute paucity of new coal projects – like the Central Queensland Coal Project – that have received approval since Labor took power provides a hint of what might be to come.