Why AGL Energy Ltd and Origin Energy Ltd share prices could underperform in 2018

The share price of AGL Energy Ltd (ASX: AGL) and Origin Energy Ltd (ASX: ORG) have failed to join the party today following news that Royal Dutch Shell is thinking about stepping on their toes.

That will hurt given the size of the Dutch oil and gas giant, which is believed to the seventh largest listed company in the world by revenue.

Shell is looking at moving into the domestic retail energy market in direct competition to local market leaders AGL, Origin and Energy Australia, according the Australian Financial Review.

Given Shell’s $345 billion market cap, its entry into the local market could trigger the biggest shake-up for the sector ever!

This could explain why the share price of AGL finished flat at $8.93 while Origin toppled 0.6% to $8.93 on Tuesday when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) jumped 0.7% and as other energy stocks like Santos Ltd (ASX: STO) rallied 1.4% and Woodside Petroleum Limited (ASX: WPL) gained 0.7%.

AGL’s share price had already been underperforming over the past year on fears of growing competitive pressure and rising interest rates.

Origin is better placed given its exposure to the surprisingly strong oil price through its LNG joint venture project, but Shell’s entry into the Australian retail market will certainly loom large over the sector.

Shell typically services large industrial customers but its Global Director of Integrated Gas, Maarten Wetselaar, said that expanding into the retail market is a logical next step that matches Shell’s UK business.

Shell acquired utility and internet service provider First Utility in the UK to challenge the big six energy players in that market and may consider a similar move here.

AGL and Origin have been seen as the ones with the market power as they are among the biggest companies in the retail market. There is little doubt that Shell will change that and AGL is probably the one with most to lose.

It’s too early to quantify the impact of Shell’s entry but I won’t be surprised if AGL had to cut its dividend if the Netherlands-headquartered giant jumped into its sand pit.

Origin will be praying for the oil price to keep marching higher as revenue from its APLNG project may help numb the pain.

Keep watching this space Fools!

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Motley Fool contributor Brendon Lau owns shares of AGL Energy Limited. 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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