The Origin Energy Ltd (ASX: ORG) share price is on the rise today after the company announced plans to conduct feasibility studies into the potential of exporting “green” hydrogen and ammonia. Australia’s third biggest energy company by market capitalisation says that it will look into Tasmania’s Bell Bay Area as the most likely plant location for this project. At the time of writing, the Origin share price is up by 3.4% in today’s trading to $4.92 per share.
What’s moving the Origin share price?
The Origin share price is responding positively to news the company is about to carry out a $3.2 million feasibility study, partly funded by the Tasmanian Government. The study will look into the use of large-scale renewable energy to convert water into hydrogen through a process known as electrolysis. Origin says the hydrogen generated would have a capacity of more than 500 megawatts, and would then be combined with nitrogen to create green ammonia for shipping to export markets.
This pivot to green exports is being considered despite the company owning a 37.5% stake in Australia Pacific LNG (APLNG), a major LNG exporter in Queensland that exports 8.6 million metric tonnes per year to Asian customers.
Origin said in a statement that “hydrogen produced from renewable energy has tremendous potential to support decarbonisation in Australia and overseas, because it is one of the most abundant elements in the universe and can be produced with zero emissions.” It has put the expected output of zero-emissions ammonia from this project at more than 420,000 tonnes a year.
Australia’s green energy landscape
The announcement by Origin coincided with a report by the Grattan Institute Think-Tank. The report recommended the Australian Government start planning for a future without gas, because gas prices would not return to the cheap levels of the past, and because of the global commitment to reach net-zero emissions by 2050.
This recommendation, however, has been dismissed by industrial energy users, saying that lack of access to affordable gas would have a negative impact on manufacturing jobs. The Morrison Government has also said that it remains committed to the role of gas in Australia, saying that future supplies from the United States will drive LNG prices down, making it affordable for Australian households and manufacturers.
How has Origin performed in 2020?
In October, Origin announced that its FY21 first-quarter revenue from its stake in the APLNG project fell 46%. This was as a result of lower oil and gas prices due to the ongoing pandemic. To add salt to the wound, a group of 10 investment banks in the US polled by The Wall Street Journal forecast that Brent crude oil price will only average $53.50 per barrel by the end of 2021 – far below its pre-COVID levels.
The Origin share price has fallen by more than 40% this year as the coronavirus took a toll on its export business. As mentioned, the Origin share price is trading at $4.92 today, up by 3.4% amid the broader rise in the energy sector as new developments in a possible vaccine were announced over night. At this price level, Origin commands a market cap of $8.67 billion.
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Motley Fool contributor Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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