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Origin Energy's decision to withdraw from fracking the Northern Territory's Beetaloo Basin could be a sign of the gradual declining role of gas in Australia, says Tony Wood, energy program director at the Grattan Institute.
Key points:
- Origin plans to sell its exploration interests in the Beetaloo Basin for $60 million
- Energy analyst Tony Wood says the decision is significant for Australia's energy outlook
- He says it is a "clear indicator" the value of fossil fuels could start "falling away"
Announcing the decision on Monday, Origin said it will sell its exploration interests in the basin to Tamboran Resources and its substantial shareholder, Bryan Sheffield, for $60 million, subject to consent from the NT government.
It expects to lose between $70 million and $90 million as a result of the move, but has struck deals to buy gas and receive a royalty payment of 5.5 per cent of revenue from gas if production goes ahead.
The basin, about 500 kilometres south-east of Darwin, has become the centre of a heated contest between gas companies, traditional owners and environmentalists, as governments push to meet emissions targets.
There have also been warnings that there might not be enough carbon credits in Australia to offset all emissions from fracking in the basin.
Tamboran Resources last week told the ASX it needed time to raise money to fund its stake in the Beetaloo transaction.
The gas junior has previously come under fire for failing to appear at a Senate inquiry into the Morrison government's controversial grants program, from which it received $7.5 million of gas subsidies earlier this year.
Mr Wood said although Origin has agreed to buy Beetaloo gas if fracking goes ahead, the decision to divest from the basin was significant in the context of Australia's energy outlook.
"Origin is saying that gas will have a future yet, and that they're going to need gas to meet some of their own commercial objectives in the next little while," he said.
"But they're wanting to have flexibility, so if the world moves faster against gas, then they can progressively withdraw from that by not having such a strong position in the upstream development side."
In a statement, Origin chief executive Frank Calabria said: "We believe gas will continue to play an important role in the energy mix and it remains a core part of our business".
Former Origin executive says 'more companies should follow'
Andrew Stock, a former Origin executive turned Climate Council energy analyst, welcomed the gas giant's decision to abandon plans to frack the Beetaloo Basin.
"Origin's move to walk away from the Beetaloo Basin, and its other petroleum exploration areas, shows that the company recognises the crumbling case for new gas exploration in Australia," he said.
"Pursuing new gas is economically risky and has already cost Origin shareholders hundreds of millions of dollars.
"More companies should follow in Origin's footsteps and walk away from this polluting fossil fuel."
But Harriet Kater, climate lead at the Australasian Centre for Corporate Responsibility (ACCR), said Origin's decision to divest its Beetaloo interests to Tamboran would do little to reduce emissions.
"Divestment of fossil fuel assets does not reduce emissions — it just shifts them — almost always to even less responsible owners," she said.
"Origin will still receive up to 36.5 petajoules of gas per annum from a successful Beetaloo development, so is still directly invested in Beetaloo's development."
Mr Wood agreed that "if your measure of success is shutting down the fossil fuel industry, I wouldn't be celebrating quite yet".
"But I think it's a clear indicator of where the direction is — that we are going to progressively see the value of fossil fuels falling away," he said.
"How quickly or how slowly that plays out, nobody really knows."
Chief executive of the Australian Petroleum Production and Exploration Association (APPEA), Samantha McCulloch, said the basin represented a "huge economic and energy security opportunity for the Northern Territory and Australia".
"Several APPEA members are active in the region and have invested millions of dollars in exploration and early development – as shown with today's announcement of a $60 million investment in the Beetaloo and Origin planning to receive future production royalties," she said.
"Research has shown developing the region could create up to 6,000 jobs and generate billions of dollars in revenue for governments within the next two decades."
Last month, 10 new offshore areas across Australia were approved by the federal government for oil and gas exploration, as were permits for two new offshore greenhouse gas storage facilities.