Origin Energy takeover: EIG’s Blair Thomas explains the simple bet behind the $18.4b Origin bid (copyright link)

Chanticleer

The simple bet behind the $18.4b Origin bid

EIG, which is buying Origin Energy’s stake in APLNG, says gas can stabilise energy prices through the global decarbonisation push, and keep the public onside.

UpdatedNov 14, 2022 – 9.58am,first published at5.00am

Save

Share

EIG Partners, the US investment giant, is celebrating 40 years in business in 2022.

But it’s the amount of change in the past 40 months that has chairman and chief executive R. Blair Thomas shaking his head in amazement.

Blair Thomas is betting big on the role of gas in the energy transition.

“The pace of change that we’re experiencing now is nothing I’ve seen in my 35 years doing this,” he tells this column from his home base in Washington DC. “I think 10 years from now, we will not recognise the energy delivery system in the world.”

Exactly how that plays out remains to be seen. But the big bet at the heart of the Origin deal, which will see, is that gas will remain vital to the energy transition for the next 20 years.

“It’ll be what stabilises it,” Thomas says.

EIG is an unusual private equity firm in that it is entirely focused on the energy market; it has committed $US41.5 billion ($61.9 billion) of capital to everything from oil pipelines and other infrastructure investments, to coal mines, oil and gas producers, and a range of renewable energy projects.

But MidOcean Energy, the EIG subsidiary that has teamed up with Canada’s Brookfield to buy Origin, is based around a simple bet: for the next 20 years, the world will need gas to stabilise the transition from fossil fuels to renewables.

“The biggest threat to decarbonisation and energy transition is lack of public support. It’s not governments, it’s not companies, it’s not policy, it’s not markets – it’s public support,” Thomas says.

Risk of public outcry

“The way to lose the public is to not provide affordable, reliable energy. And so people need to recognise that this transition is a transition, and that gas is the key fuel to make it happen.

“It’s in everybody’s interest that we provide security and price stability. Otherwise, there’s a real risk that the public turns on decarbonisation and then we’re all losers. And so even the most fervent environmentalists should recognise that price stability is in their interest.”

This view is clearly shared by Brookfield, which plans to invest $20 billion over the next eight years on renewable energy projects that will initially be firmed by Origin’s market-leading fleet of gas-fired peaking plants.

Still, no doubt many of these environmentalists at Thomas’ gas advocacy, coming as it does from one of the world’s biggest private investors in oil and gas.

But Thomas would have some sympathy for the environmentalists’ view that no new oil and gas projects should be developed. At MidOcean, the focus is clearly on existing, operational LNG projects that do not face the financing challenges that greenfield projects do.

Earlier bid

“I do believe the market makes a big distinction between natural gas and certainly coal, and to a lesser extent oil. On that continuum of public pushback ... we’re really not seeing it on gas yet.”

EIG’s latest play for Origin’s APLNG comes after an attempt last year to buy a 10 per cent stake in the joint venture from Origin was thwarted by fellow APLNG investor ConocoPhillips, which used its pre-emptive rights to nab the stake.

But Thomas says EIG did two years of work leading into that deal. The fact that it returned for a second crack underscores its belief that there is a lot of money to be made out of providing increasingly scarce gas for the energy transition, and Australia’s role in that opportunity.

“We’re investing in these assets around the world and we have high conviction about Australia and the role that Australia plays in a broader global strategy,” he says. “And yes, we want to win.”

While the conflict in Ukraine and the ensuing scramble for gas across Europe has clearly added to the pace of change Thomas is seeing, the EIG view is that Asia remains the centre of the gas universe, and Australia’s well-established position as a supplier of choice for gas customers in North Asia makes it a key part of EIG’s portfolio.

The fact MidOcean has stitched up a deal for Origin’s APLNG stake just a month after spending $US2.15 billion to buy a portfolio of stakes in the Gorgon LNG, Ichthys LNG, Pluto LNG and Queensland Curtis LNG projects from Tokyo Gas, says Thomas isn’t too worried about the increasingly heated political environment around energy generally and gas particularly.

Australia, he says, isn’t alone in having these political and regulatory debates; EIG has been caught up in similar brawls in Germany, which has been left reeling by the collapse of Russian gas supplies, and Britain, where the firm is now subject to the windfall profits tax on energy companies.

Thomas says EIG protects itself through diversification – Australia will be a big piece of MidOcean’s portfolio after the Origin deal, but EIG’s ultimate goal is to build a much larger business that it can eventually list, as it did with another subsidiary called Harbour Energy.

That company, which famously made an unsuccessful bid for Santos in 2018, listed in London in April 2021 and now has a market value of $5.5 billion.