If you own Santos Ltd (ASX: STO) shares you own part of a company doing everything it can do to address the energy crisis.
That’s according to Santos CEO, Kevin Gallagher, speaking at the Melbourne Mining Club yesterday.
The early impacts of rocketing energy prices
While Santos shares have received a tailwind from fast rising energy prices, the higher costs are already taking a bite out of household and company budgets.
From petrol to electricity to plane tickets, rocketing coal, oil and gas prices are seeing consumers shell out more of their hard-earned savings.
And that’s quickly seeping into the broader economy, fuelling inflation.
Take fresh food, for example.
With energy prices soaring, it costs a lot more to run the farm equipment, processing machinery and transport vehicles to get your food to market. Not to mention the stores are paying more to keep the lights on and the food chilled.
And with gas shortages now looming, the situation is unlikely to resolve itself any time soon.
What can ASX energy companies do?
Unfortunately, Santos and other Aussie energy companies can’t do much to bring extra gas online in the short term.
According to Gallagher (quoted by The Australian), “The industry can’t do any more than it’s doing now, because that pipeline is at capacity. No more gas can come in from Queensland than is coming today – the industry is doing all it can from Queensland to support the east coast market.”
The problem, Gallagher pointed out, lies in 10 years of underinvestment in new gas supplies, often hamstrung by lack of government approval and long-term clarity on the future of fossil fuel projects.
“The scarcity of new developments today is frightening with forecasts of tight supply over coming years,” Gallagher said. “Customers are crying out for this gas with more demand than we can meet when it comes to market around 2026. And I am trying to bring Narrabri to market earlier if that is possible.”
But mammoth projects like this take time. And even if Santos were to receive the green light from regulators to proceed immediately, Narrabri is still some three years from producing its first gas.
“It’s not going to be in three months’ time, or this year. We can start drilling wells, but we’ve got to build pipelines and plants,” Gallagher said.
The coal-seam gas project in New South Wales has been delayed for years, facing opposition from environmental groups concerned about the project’s impact on the local environment and global greenhouse gas emissions.
The finger of blame
When it comes to the energy crisis, don’t blame Santos or Australia’s other gas companies.
According to Gallagher (quoted by The Australian):
Shortages in the domestic market and the price shocks we have seen in recent weeks have nothing to do with the behaviour of gas producers or exporters, who are doing everything they can to support the market right now.
This is the consequence of more than a decade of energy policy failure that has stopped the industry developing more gas supply in a timely manner.
If you want more gas, you’ve got to produce more gas and develop more gas. You can’t just conjure it up magically when coal fired power stations turn off and renewables underperform.
As for the Australian Domestic Gas Security Mechanism, Gallagher said that could alleviate some of the problems, but only as a short-term fix.
“I don’t think that’s a bad thing. I think the government has got to do something in the short term, but that’s not a long-term solution,” he said. “It’s not a long-term solution to start threatening the LNG projects where our overseas customers have invested billions of dollars for their own energy security.”
How have Santos shares been tracking?
Santos shares have widely outperformed the benchmark, benefiting from the historically high gas prices.
Year-to-date the Santos share price is up 27%. That compares to a 5% loss posted by the S&P/ASX 200 Index (ASX: XJO).
The post Own Santos shares? Here’s the company’s response to the energy crisis appeared first on The Motley Fool Australia.
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