ADNOC's Santos bid is gift to energy transition
02/07/2025 03:53
The author is a Reuters Breakingviews columnist. The opinions expressed are his own. Refiles to fix dateline.
By Antony Currie
MELBOURNE, July 2 (Reuters Breakingviews) - Abu Dhabi National Oil Company is taking a risk with its $18.7 billion bid for Australian liquefied natural gas producer Santos STO.AX. There's a decent chance that Canberra adds the UAE energy giant's offer, unveiled in mid-June, to a list of blocked attempts by overseas players to buy critical infrastructure Down Under. But Prime Minister Anthony Albanese's administration could instead turn the deal into an opportunity to shore up his country's energy transition.
Wannabe acquirers of Australian energy assets have a chequered history. Past governments waved through purchases by Hong Kong companies for power producers – CLP Group's 0002.HK 2011 acquisition of EnergyAustralia and Chow Tai Fook's 2017 deal for Alinta Energy. But they blocked Shell's SHEL.L 2001 swoop for Santos rival Woodside Energy WDS.AX and competing foreign bids in 2016 for Ausgrid – including one from China's State Grid Corp. Santos shares are currently trading almost 13% below the price offered by ADNOC subsidiary XRG, suggesting it may soon be added to the list.
There's good reason for the discount. XRG wants Santos as part of its goal to become a global LNG provider. Its target is a major player in a country that has become one of the top three exporters of the fossil gas by selling 80% of its production abroad, where drillers can usually get a higher price. Trouble is, there are worries that Australia's overseas success risks domestic shortages, especially as ageing coal-fired power stations close. One regulator, the Australian Energy Market Operator, routinely estimates when those shortfalls may occur, with 2029 its most recent forecast.
That timeline may well be wrong. AEMO's past predictions have not come to pass. The southeastern state of Victoria last month unveiled energy efficiency and home electrification rules that could push back AEMO's latest doomsday scenario by three years. And Albanese's administration is adding a home-battery subsidy programme to bolster its goal of generating 82% of electricity from renewables by 2030.
No government, though, wants to be blamed for power outages. That gives the upper hand to Treasurer Jim Chalmers, who ultimately decides, with input from the Foreign Investment Review Board, whether to nod through or nix Santos' offer. He could insist that the bidder guarantee a set amount of LNG for the domestic market as a condition of approving the takeover: ADNOC's deeper pockets could help develop domestic gas supplies faster than a constrained, publicly traded Santos. It'd be a smart insurance policy to have while solar, wind and battery projects ramp up.
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CONTEXT NEWS
Shares in Australian liquified natural gas producer Santos closed at A$7.65 ($5.03) each on July 1, almost 13% below the per-share takeover offer a consortium led by Abu Dhabi National Oil Company subsidiary XRG made on June 16.
The bidder announced its offer in U.S. dollars, proposing $5.76 per share for each Santos share, equivalent to A$8.75 at current exchange rates.
The consortium includes Abu Dhabi Development Holding Company and U.S. private equity firm Carlyle.
Santos trades at a 13% discount to ADNOC's offer https://www.reuters.com/graphics/BRV-BRV/xmpjeozabvr/chart.png
(Editing by Una Galani; Production by Ujjaini Dutta)
((For previous columns by the author, Reuters customers can click on CURRIE/antony.currie@thomsonreuters.com))