AGL Energy has ditched divisive plans for a $1 billion coal seam gas production venture in the Gloucester region of NSW in a decision that delighted green activists but sharpened worries in business about higher prices and shrinking supplies.

The biggest electricity and gas retailer will also close down its operational Camden coal seam gas project south of Sydney in 2023, 12 years early, as part of a broader decision to shut down its gas exploration and production business. The company will incur a $795 million write-down at its half-year profit report next week.