Origin, one of Australia’s biggest electricity and gas suppliers, could gain a significant competitive edge on its energy rivals by selling its gas assets while the Australian gas market is temporarily buoyed by Federal Government support and switching to become a green energy provider, according to a new report.
The new report from ITK Services, commissioned by Lock the Gate Alliance, argues that Origin is one of the best placed companies amongst the Australian energy giants to make the switch to green electricity and green hydrogen provision.
Origin on Friday reported significant financial losses, taking a $2.2bn hit as renewables supersede gas in the electricity market.
Report author and energy analyst David Leitch, Principal at ITK Services argues that gas has a limited shelf life, both domestically and in key Asian markets, and that Federal Government support for gas provides an “exit window” for gas producers like Origin to sell up while there are still many potential buyers.
“Origin's electricity business has been a long term poor performer because of a lack of brand equity - it doesn't stand for anything, either to the company or to customers. Its mixed portfolio of gas and oil exploration together with electricity has not been valued by investors leading to long term share price underperformance,” he said.
“Origin’s asset portfolio has provided a disappointing return to investors. Early movers in Europe and North America such as National Grid, Orsted and Nextera have led the pack in embracing a zero carbon future and have been rewarded by investors.”
“By selling its mature gas assets, Origin would earn the opportunity to reinvest in a large-scale green electricity and hydrogen business that would offer clearly different products to the large market that would prefer to buy a green future.”
The ITK report looks at trends in the North American and European markets, as well as the emissions reduction signals in key gas export markets such as Japan. It found that Origin stands to make substantial commercial gains over gas rival Santos and other electricity providers by transforming into a provider of 100% renewable electricity and green hydrogen, with potential renewable energy export avenues into Asian markets through its existing gas links.
Key findings
- Origin Energy's gas business has a limited shelf life, now operating in an increasingly renewable world.
- Investors are increasingly avoiding gas assets. Origin, as the secondary player in the Australian gas market, will struggle to find backers as the gas market shrinks.
- Origin's claims to be decarbonising look like greenwashing to independent observers while it retains polluting oil and gas assets.
- Origin's leadership team have so far failed to read the market by clinging to gas when they could have been capitalising on the renewables revolution, but there is the opportunity to turn things around for their shareholders.
- Switching to become a provider of 100% renewable electricity would give Origin a competitive edge over slow, lumbering energy giants like AGL and Energy Australia.
- Origin could capitalise on its existing relationships with Asian markets to become a leading exporter of renewable power, like green hydrogen and ammonia.
- Managing Director of EthInvest Trevor Thomas, a shareholder in Origin, received an advance copy of the report and said: “Origin Energy faces an existential crisis in a decarbonising world. This timely report outlines a green pathway for shareholders to regain value from a company that has been a persistently disappointing investment.”