Energy crises in Europe and Asia are delivering windfall profits to Australian oil and gas producers, which are raking in up to $200 million for shipments of gas.
- Australian gas producers are making up to $200 million on single cargoes of liquefied natural gas
- Energy crises in Europe and Asia are driving gas markets to record highs ahead of the northern winter
- Industry experts say the situation points to the role of gas as a balancing fuel in switch to green energy
Prices for natural gas have reached historic highs in recent weeks as surging demand for the fuel in the Northern Hemisphere collides with tight supplies to send the market soaring.
The volatility has led to desperate buyers in Asian countries such as Japan and China paying up to $US150 million ($204 million) for a single cargo of liquefied natural gas.
Mark Hanna, the chief executive of Perth-based Energy Market Strategies, said the prices were “unprecedented” and about double the previous record.
One industry veteran also noted that LNG cargoes sold for as little as $3 million in 2000 during a period of oversupply.
“It’s the first time this sort of phenomenon has happened,” Mr Hanna said.
“It is a boon.
Perfect storm drives market
Driving the recent market has been booming demand for gas in Asia, where the fuel is increasingly preferred as a cleaner alternative to coal.
China, in particular, has been scrambling for gas supplies to prop up its power system after moves to clamp down on pollution caused by coal-fired electricity prompted power rationing and widespread blackouts.
Mr Hanna said the market was being further propelled 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’ve come off COVID when demand for energy has been suppressed and investment in energy, therefore, has been low,” Mr Hanna said.
“Economies have opened up quicker and perhaps stronger than people expected.
“There’s geopolitics and weather involved.
Australian producers ‘cashing in’
Despite the eye-watering prices, Mr Hanna said the ability of Australian producers such as ASX-listed Woodside and Santos was somewhat constrained.
He said most of what those companies produced was sold to customers via long-term contracts, which were invariably set at more conservative prices.
However, he noted the producers typically held back a certain amount of their output for the spot market, meaning they would still be capitalising on the situation.
“And actually, you’re going to see a lot of returns going to companies like Woodside and Santos.
“The biggest challenge for them will be how much of their portfolio do they keep open?
“As contracts roll-off, how much do they renew, and how much do they leave open to the spot market to take advantage of these things?
“So, with energy prices, in short, where’ll they be is God knows. But they will be higher.”
Woodside chief executive Meg O’Neill said the rise of Europe in the LNG market was responsible for much of the recent volatility.
Higher gas prices ‘to last longer’
Ms O’Neill said the market also reflected the importance of gas as a balancing fuel in the switch to a renewable energy system, noting it could cushion the inherent intermittency of green sources such as wind turbines and solar panels.
“The fundamentals are that natural gas is in demand,” Ms O’Neill said.
“This is in part because of the role gas plays in the energy transition – it can generate power with lower emissions than coal, and it can enable broader and more reliable use of renewables by stabilising power grids.
“The near-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 certainty they provide also supports market conditions that enable new projects to be sanctioned and developed to ensure a healthy balance between supply and demand.
“We know buyers require flexibility in longer-term contracts to manage demand fluctuations, and Woodside is able to provide that flexibility.”