Australian Gas Asset Ownership Through The Energy Transition

In recent decades Australian politicians have been delinquent in their leadership* and this means that the Australian public has been slow to understand the myriad issues surrounding the energy transition even if recent election results show that concern over the climate crisis is growing rapidly. 

Perhaps the most critical aspect of the energy transition is that those in charge of resources and equipment which are vital in bridging humanity with still necessary fossil fuels to a sustainable future through the energy transition are constructive. 

It is not necessary that they, themselves, transition the businesses they lead to producing renewable energy – that is a business strategy decision for them to make – but they must not act to undermine or impede the transition.

In short, they must accept the stranding of their fossil fuel assets at an optimal rate commensurate with the development and deployment of energy from renewable sources to minimise further harm to the climate and all life on the planet.

It is here where the major fossil fuel extractors with integrated energy businesses have lost trust with many in the broad global community.

There is a perception that the leaders of these businesses over several decades have used the power and influence that goes hand in hand with such a geopolitically significant industry to impede the transition first by obfuscating the scientific evidence which proved its necessity.

For many close observers it is impossible that they would ever trust these businesses again, no matter who leads the organisation. Consequently, there are activists arguing for the majors to be bought by Governments to nationalise their assets to control their phasing out.

Governments adopting such a nationalisation strategy would run counter to the manner in which our increasingly Extreme capitalism has worked over recent decades. It would, indeed, be a major Reset.

With the profit (above all else) imperative so deeply enmeshed in our Extreme capitalism, often sidelining weakened bureaucratic regulation, and with political influence itself lightly regulated in our contemporary democracies, the more common approach in similar situations has been the adoption of a ‘good bank/bad bank’ strategy where the ‘bad’ parts are separated off and sold to businesses that seek to maximise those profits irrespective of the broader negative impacts.

Often these businesses are less well known and, because their brand is not critical to the making of their profits, societal perspectives on their actions are insignificant in their operations.

This is a critical difference from large, well-known, often publicly-listed companies. For instance, Shell plc (formerly Royal Dutch Shell) puts a dollar value on its company emblem the ‘pecten’ and values its brand and reputation highly.

Of course, all businesses are just groups of human beings, and business strategies, actions and behaviours are the result of decisions made by human beings.

In Extreme capitalism there are many human beings prepared and permitted to choose self-interest above the greater good for all of humanity. And the significant profits made from these ‘bad’ businesses provides them with the opportunity to exert much political influence which may be used to protect profits.

In recent years private equity businesses have been buying up fossil fuel extraction resources often in concentrated portfolios. One such private equity establishment is EIG Global Energy Partners which over several decades has come to control a portfolio of over 60 energy businesses with a very high weighting towards oil and gas extraction. 

Last month, through a new Australian business created by it named MidOcean Energy, EIG paid Tokyo Gas US$2.15 Billion to acquire its Australian assets which include stakes in the highest profile gas extraction projects in the country (including Gorgon LNG, Ichthys LNG, Pluto LNG and Queensland coal seam gas). EIG is now aiming to buy a further stake in Queensland coal seam gas in Origin Energy’s stake in APLNG by joining with another private equity establishment in Brookfield Energy which will take over Origin’s electricity generation business.

EIG states the investment thesis behind its gas assets is that it is “a critical enabler of the energy transition and [because of the] growing importance of LNG as a geopolitically strategic energy resource”.

Reporting often describes this strategy as a “bet” which not only reflects the risk involved in (all) investing and capital allocation but alludes to the concentration in the portfolio on gas. (eg )

In 2012 this is what the (still) CEO of EIG, and Director of MidOcean Energy, Mr. Blair Thomas told the Financial Times:

Gas is a destination, not a bridge to anything else. Over time, its share of the global energy mix will increase. It will eventually undermine all the subsidies for renewables.

If Mr. Thomas still has the same view, and it has driven the investment decisions EIG has made under his leadership up to the present day, there is clear potential for this increasingly important player in Australian and global energy supply to be less constructive towards the critical energy transition than many well-informed observers would prefer.

Given those observers are already sceptical over the willingness of the publicly-listed energy giants to assist in the stranding of their assets through an energy transition, and the demonstrated willingness of the industry to lobby elected officials aggressively, we really need to carefully consider whether the situation is being made worse, and the energy transition at risk of being (further?) undermined, by these assets moving into opaque and concentrated private equity ownership structures led by people who we know very little about.

Postscript, I intentionally made this ‘personal’ because it is easy to treat businesses as amorphous entities which is to deny the reality. The impacts of climate change are personally felt by all of us, and so we need to ensure that we talk about the causes and responses in personal terms. This is epitomised by the passion of John Kerry, the US Special Envoy On Climate Change, in this interview with Bloomberg during COP27 where he called for the declaration of war against climate change (echoing my own call from January 2020).

* As additional indication of delinquent leadership by Australian politicians I also offer this transcript dated February 2020 from an interview by Leigh Sales on 7.30 with former Liberal Treasurer Joe Hockey:

LEIGH SALES:  Do you think that ministerial standards are at the same height that they were 20 years ago?

JOE HOCKEY:  I mean, it’s all changed, Leigh. Social media has changed everything. Social media has made the voice of the critic much, much louder than the voice of the advocate.

And the second thing that’s changed is disruption.

Everyone keeps calling for government to initiate reform, but really, what’s happening is the private sector is initiating reform, on a scale that we’ve never seen before.

LEIGH SALES:  Is there something fundamentally wrong with that though, if Government is not leading?

JOE HOCKEY:  No. Because it empowers individuals and we all believe that individuals should be their best.

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© Copyright Brett Edgerton 2022

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