Big energy bid is a vote of confidence in future of gas

The $18.4bn takeover offer for Origin Energy by Canadian investment company Brookfield and private energy giant EIG underscores the difficulty faced by government in any attempts to intervene in Australia’s energy market at a time of radical global transformation. The deal, if it proceeds, will have implications for domestic electricity users and industrial gas consumers fighting for supplies against exports from the Gladstone liquefied natural gas terminal in which Origin has been a central player. The proposed takeover by Brookfield and possible split of Origin between its electricity generation and retail business and its Queensland-based LNG export operations add further complication to the Albanese government’s energy plans.

The federal government is still considering how to deliver on its promise to lower energy prices for business and households. The immediate priority is what to do about gas where big users are being hit with sharp rises in contract prices because of a combination of domestic and international factors. The Albanese government also faces the problem of sharply rising electricity prices for households, more than 50 per cent next year, having promised during the election campaign to cut prices significantly by 2025.

Dennis Shanahan reports that when Anthony Albanese returns from a nine-day trip to attend three Asian summits, cabinet is set to consider a new tax on gas and thermal coal in an effort to cut energy prices. On Tuesday, Treasury secretary Steven Kennedy opened the door for a “temporary” and “direct” intervention in the energy market, saying it was justified by the extraordinary circumstances associated with Russia’s invasion of Ukraine.

Origin holds a central role in both the electricity and gas markets. As part of the deal, Brookfield would sell Origin’s LNG export business in Gladstone to US energy investor MidOcean Energy. The sale would remove the biggest remaining Australian player in the east coast LNG export market. On the one hand, a takeover offer makes intervening easier, given the new buyer must be fully aware of what the federal government wants to achieve in terms of redirecting gas to the domestic market at a lower price. Leverage exists for the federal government because the deal will be subject to approval by the Foreign Investment Review Board. On the other hand, the federal government has little strategic interest in frustrating the Brookfield deal. The company is already a significant player in the domestic electricity market through last year’s $10.6bn purchase of electricity grid owner AusNet, and the Origin deal comes with a promise to spend billions developing exactly the sort of renewable energy projects that are needed to advance the federal government’s legislated promise to achieve 82 per cent renewable energy from the grid by 2030.

By bidding for Origin, Brookfield also has confirmed it no longer has any ambitions to take over AGL in co-operation with tech billionaire Mike Cannon-Brookes.

The big takeout from the Brookfield deal is that global players can recognise the value of Australia’s resource assets in a way local interests do not. They see a decades-long future for gas. The Origin bid is the latest in a string of takeover attempts by EIG, which previously has sought to buy Santos as well as a 10 per cent stake in the Australia Pacific LNG project in Queensland.

The government’s best option is to keep building value in domestic industry by allowing greater production of gas. This will deliver a combination of benefits. It will reduce domestic gas prices as production volumes swamp the export capacity from Queensland. It will assist the low-emissions transition in Australia and in our region. And it will boost the budget bottom line through tax and royalties, and enrich a new generation of investors smart enough to recognise that the world’s energy solution is to play always to your domestic strengths.