News: UPDATE 2-Australia's AGL Energy quits gas business as oil price bites

• Company says oil slump has driven down gas prices
• Logical diversification now seems difficult
• Australia coping with commodities downturn

(Recasts, adds analyst comment, updates shares)

Australia's second-largest energy retailer AGL Energy Ltd (AGL) has quit its coal-seam gas business as plunging oil prices undermined the economics of the projects, highlighting the pressure on the country's energy industry.

AGL has been trying to sell its gas assets in Queensland state for several years, but said in a statement on Thursday that efforts to sell the Moranbah, Silver Spring and Spring Gully sites may take time because of "difficult market conditions."

The collapse in oil prices has impacted long-term gas prices for those projects and will result in a A$498 million ($357 million) impairment charge to its half-yearly results next week, it said.

The Sydney-listed company said it will not move forward with its Gloucester project and will stop output at its Camden project, both in New South Wales, earlier than planned. The Gloucester project was halted as "disappointing gas flow" on a test well showed lower-than-expected project output from the site.

These decisions will bring another A$142 million impairment charge, AGL said.

While AGL, Australia's biggest carbon polluter, has faced pressure from environmental campaigners over its NSW gas projects for years, CEO Andy Vesey said the company decided to bail on those assets because they did not justify investment totalling A$1 billion.

AGL and other energy retailers' forays into gas exploration and production and gas exporting seemed like a natural diversification for the retailers when the projects were planned and oil prices, used to formulate gas-sales prices, were above $100 a barrel. With oil now trading above $30 a barrel, the outlook for the plans are not as rosy.

Australia's largest energy retailer Origin Energy Ltd (ORG) in September asked shareholders for $1.8 billion to cut debt as the weak oil price hampered the outlook for A$25 billion Australia Pacific Liquefied Natural Gas project.

Oil and gas producer Santos Ltd (STO) has also put its assets on the block to cope with the downturn.

"If anybody knew that the oil price was going to tumble from $120 a barrel to $30 a barrel, we'd all be very rich," said Shaw and Partners analyst David Fraser.

"People far more specialised than AGL couldn't see it coming."

Investors welcomed the move, sending AGL shares up as much as 2.4 percent to touch a record intraday high of A$18.95, in a higher overall market.

The company reports half-year results on Feb. 10, with analysts forecasting an underlying net profit of A$708 million, up 12 percent on the prior corresponding period, according to Thomson Reuters Starmine.

($1 = 1.3939 Australian dollars)