Australia’s AGL Energy to sell gas production assets due to volatile markets

Energy giant AGL has chose to cut its losses in the troubled coal seam gas sector, announcing that it will end all exploration and production of natural gas.

Without Gloucester, AGL said there were limited opportunities for scale and efficiencies across projects, so it now plans to cease production at its 10-year-old Camden coalseam gas operations near the New South Wales capital of Sydney in 2023, 12 years earlier than previously proposed.

“[AGL] has taken a strategic decision that exploration and production of natural gas assets will no longer be a core business for the company due to the volatility of commodity prices and long development lead times”, it said in a company statement today.

The actions are, however, seen likely to have only a “minimal impact” on underlying profit for the 2016 financial year.

AGL is one of Australia’s largest energy retailers, and has for years looked to expand its presence in gas production in order to source supplies for its retail and commercial operations, plus boost margins.

AGL will hand its petroleum exploration licence back to the NSW government and will “commence a comprehensive decommissioning and rehabilitation program for its well sites and other infrastructure in the Gloucester region”.

“Exiting our gas assets in New South Wales has been a hard decision for the company”, he said.

“The government’s role is to provide the policy settings and regulations that give communities and industry certainty when it comes to the development of the state’s resources”, Mr Roberts said, adding that the industry had the potential to “provide jobs, support local communities and put downward pressure on prices for households and businesses”.

Environmentalists and residents in the Gloucester, NSW region are ecstatic after AGL Energy Ltd (ASX: AGL) abandoned its Gloucester coal seam gas project, north of Newcastle.

Protesters blockaded access to AGL’s Waukivory Pilot Project exploratory coal seam gas fracking site on Fairbairn Road, Gloucester in August 2014.

“AGL is confident that it has sufficient gas for its residential and small business customers following the recent contract with the Gippsland Basin Joint Venture and the planned expansion of the Eastern Gas Pipeline”, the company announced on Thursday.

Assets in Moranbah, Silver Springs and Spring Gulley – with the exception of a gas storage plant at Silver Springs – will be sold off.

Malcolm Roberts, chief of industry lobby group APPEA, said that without “gas development soon, NSW will be 100 per cent reliant on other states for supply to households and manufacturers”.

“This decision shows that a social licence is necessary to operate in a community”.

AGL will extract gas from its existing wells so they can be closed in 2023.