Australian energy giant shifts away from 'dirty' mining

AGL Energy is pulling out of coal seam gas sector, which uses controversial fracking

For years, Australian mining firms and an alliance of farmers and environmentalists have clashed bitterly over controversial exploration and drilling for coal seam gas. But a winner may now be emerging.

In a move that was hailed as a victory in the local campaign against coal seam gas, Australian mining giant AGL Energy has revealed it is pulling out of the sector.

The firm informed the stock market on Feb 4 that it was scrapping a much-criticised A$1 billion (S$988 million) project in rural New South Wales. It is also ending a project in south-west Sydney in 2023, 12 years earlier than planned, and selling off projects in Queensland.

Environmentalists hailed AGL's move as a shift away from "dirty" mining towards green energy. "AGL seems to be making a significant effort to transition from climate baddie to an energy company with a clean future," said New South Wales Greens MP Jeremy Buckingham.

AGL blamed its exit on the fall in commodity prices and lower-than-expected volumes from the rural project and made no mention of the vocal protests. But the firm has dramatically shifted its focus away from carbon-emitting fossil fuels to clean energy, launching a fund to develop up to A$3 billion of renewable energy projects.

Australia is one of the world's largest gas exporters. In 2014, it shipped 24 million tonnes of liquefied natural gas (LNG) worth A$16.4 billion, with Japan, China and South Korea the biggest importers.

Fracking, the controversial process in which coal seams are fractured to allow gas to flow out more freely, is used in about 20 to 40 per cent of Australia's coal seam gas wells. The practice has been banned or suspended in some states due to environmental concerns.

Coal seam gas (CSG) is believed to account for about 27 per cent of Australia's total reserves, with the supplies largely located in the eastern states of New South Wales and Queensland. "While AGL's withdrawal - regardless of motivation - represents a major step forward for anti-CSG causes, it simultaneously raises further questions," Dr Sara Bice of Melbourne University wrote on the university's website yesterday."(If) majors exit, will a CSG development gap be filled by smaller and potentially less responsible companies?"

The growth of coal seam gas exploration in the past 15 years prompted a vocal grassroots campaign led by Lock The Gate, an alliance of farmers, environmentalists and local residents.

Fracking, a process in which coal seams are fractured to allow gas to flow out more freely, is used in about 20 to 40 per cent of Australia's coal seam gas wells. The practice has been banned or suspended in some states due to environmental concerns.

Analysts said the campaign against coal seam gas has helped to persuade miners to pull out. But the main threat to the industry has been plunging mineral prices.

Australian consulting firm Resource and Land Management Services has suggested that the massive growth of coal seam gas across Queensland faces an uncertain future. "Unfortunately for our domestic gas champions, Santos and Origin, just as they should be celebrating their achievements they're forced to try and square massive debt piles with low oil and therefore LNG prices," it said in September last year.

Energy analyst Tim Forcey, from the University of Melbourne Energy Institute, said new coal seam gas export projects were unlikely to be economically viable due to falling overseas gas prices. But firms such as Santos would probably continue drilling because they had invested billions of dollars in pipelines and other infrastructure.

"The gas companies have spent billions on their LNG trains and need to keep them fed," he told The Straits Times.

A version of this article appeared in the print edition of The Straits Times on February 13, 2016, with the headline 'Australian energy giant shifts away from 'dirty' mining'. Print Edition | Subscribe