Sat. Jan 22nd, 2022

Energy crises in Europe and Asia are delivering profit gains to Australian oil and gas producers, raising up to $ 200 million to ship gas.

Natural gas prices have reached historic highs in recent weeks as rising demand for fuel in the northern hemisphere collides with tight supplies to cause the market to rise.

Volatility has led desperate buyers in Asian countries such as Japan and China to pay up to $ 150 million ($ 204 million) for a single load of liquefied natural gas.

Mark Hanna, CEO of Perth-based energy market strategies, said prices were “unprecedented” and about double the previous record.

An industry veteran also noted that LNG cargoes were sold for as little as $ 3 million in 2000 during a period of oversupply.

“This is the first time this kind of phenomenon has happened,” Mr Hanna said.

“It’s a blessing.

Perfect storm drives the market

Running the latest market has been a strong demand for gas in Asia, where fuel is increasingly preferred as a cleaner alternative to coal.

Make-up man with graying cut hair and wearing suit and tie
Gas market expert Mark Hanna.(Delivered: Energy market strategies)

In particular, China has struggled for gas supplies to support its post-movement power system to curb pollution caused by coal-fired electricity that led to power rations and widespread blackouts.

Sir. Hanna said the market was further driven by events in Europe where there had been a “wind drought” and Russia was suspected of withholding gas supplies to force through approvals for a new gas pipeline.

“We have come from COVID when the demand for energy has been suppressed and investments in energy have therefore been low,” Hanna said.

“Economies have opened up faster and perhaps stronger than people had expected.

“Geopolitics and weather are involved.

Australian producers ‘cash in’

Despite the conspicuous prices, Mr Hanna said the ability of Australian manufacturers such as ASX-listed Woodside and Santos was somewhat limited.

He said most of what these companies produced was sold to customers through long-term contracts, which were always set at more conservative prices.

However, he noted that producers typically withheld a certain amount of their production to the spot market, which means that they would still take advantage of the situation.

“And in fact, you’re going to see a lot of returns for companies like Woodside and Santos.

“The biggest challenge for them will be how much of their portfolio do they keep open?

“When contracts roll out, how much do they innovate and how much do they leave open to the spot market to take advantage of these things?

“So with energy prices, in short, where they want to be, God knows. But they want to be higher.”

Woodside’s CEO Meg O’Neill said Europe’s progress in the LNG market was responsible for much of the recent volatility.

Higher gas prices ‘to last longer’

Blonde woman wearing black suit and ruffled shirt standing in front of Woodside workers controlling a robot
Woodside CEO Meg O’Neill says the market reflects the role of gas as a balancing fuel.(ABC: Daniel Mercer)

Ms O’Neill said the market also reflected the importance of gas as a balancing fuel in the shift to a renewable energy system, noting that it could dampen the inherent mix of green sources such as wind turbines and solar panels.

“The basic thing is that there is a demand for natural gas,” O’Neill said.

“This is partly due to the role that gas plays in energy conversion – it can generate electricity with lower emissions than coal, and it can enable a wider and more reliable use of renewable energy sources by stabilizing the electricity grid.

“Short-term volatility confirms the value of long-term gas contracts for both suppliers and customers given the protection they offer against extreme price fluctuations.

“The long-term security they provide also supports market conditions that make it possible to sanction and develop new projects to ensure a healthy balance between supply and demand.

“We know buyers demand flexibility in long-term contracts to manage demand, and Woodside is able to provide that flexibility.”

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