Could international demand keep boosting Woodside shares for the next 20 years?

The Woodside Energy Group Ltd (ASX: WDS) share price closed Tuesday’s session up 1.94% to $33.06. Over the year to date, shares in the ASX oil & gas behemoth have risen by more than 45%.

Woodside is among the world’s top 10 LNG players following its merger with the petroleum business of BHP Group Ltd (ASX: BHP) in June.

The company released its FY22 half-year earnings on 30 August. It commented that the outlook for gas is “strong and sustained”.

This is despite growing momentum in the shift to renewables, which is a clear challenge for all ASX fossil fuel producers.

The BHP merger resulted in Woodside acquiring several new assets in Australian and international locations. This has widened the company’s customer base and positioned it well to capitalise on changing worldwide demand for gas over the next two decades.

Europe’s shift away from Russia

Woodside said LNG markets are “incentivising new global LNG projects as Europe replaces Russian gas”.

Since the Ukraine invasion, there has been growing European sentiment to diversify away from Russia.

Russia supplied the EU with 40% of its natural gas in 2021, according to bbc.com.

About 70% of Woodside’s assets are involved in gas production. A global supply/demand imbalance could present new client opportunities for Woodside. Plus it’s already pushing up commodity prices, which means Woodside can make more money.

In a briefing to investors on 30 August, Woodside CEO Meg O’Neill said:

There is no doubt that energy security has become a fundamental issue for world energy markets in the wake of Russia’s invasion of Ukraine and we are seeing that translate into commodity prices.

The average realised price across the portfolio more than doubled compared to the first half of 2021. Our exposure to gas hub pricing for the half was approximately 18% of produced LNG and we are tracking for the full year to be in our target range of 20 to 25%.

The merger with BHP meant Woodside now owns interests in a bunch of extra international projects. They include the Atlantis, Shenzi and Mad Dog oil and gas fields in the United States Gulf of Mexico. There’s also Greater Angostura incorporating two offshore oil and gas fields near Trinidad and Tobago.

Despite a larger portfolio of assets, O’Neill said Woodside would be unable to keep up with demand.

Europe to become a ‘major demand centre’

O’Neill said:

Looking forward to how the market could evolve in the future … analysts expect to see increasing demand for our core product, LNG, in the decade ahead. Existing LNG projects and those under construction are not expected to keep up with growing demand.

The LNG story is now more than just Asia with Europe emerging as a major demand centre as western Europe seeks to reduce reliance on Russian pipeline gas. Woodside is ideally placed to supply both Asian and European markets from our portfolio of assets in OECD nations.

Asian demand peak still 20 years away

Woodside’s half-year report stated that “gaseous fuels remain critical to the energy transition with low-risk and reliable sources advantaged”.

The company said demand from Asia for natural gas is “not expected to peak before mid-2040s”.

O’Neill said:

The upheavals in global and Australian energy markets witnessed over the course of the past six months have shone a spotlight on the importance of gas in the world’s energy mix and underscores our confidence in the longer-term demand outlook for gas …

Safe and reliable supplies of gas are not only critical to global energy security but will play a key role as our customers seek to decarbonise, alongside new energy sources such as hydrogen and ammonia that Woodside is investing in.

International demand won’t be limited to gas

As the world transitions to renewables, Woodside intends to expand its product offering to include things like hydrogen and ammonia. The company has set a target to invest US$5 billion in new energy products and lower carbon services by 2030.

O’Neill said:

Our strategy to thrive through the energy transition as a low-cost, lower-carbon energy provider continues to progress through recently announced initiatives across hydrogen refuelling, carbon capture and storage and carbon to products technologies.

The post Could international demand keep boosting Woodside shares for the next 20 years? appeared first on The Motley Fool Australia.

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Motley Fool contributor Bronwyn Allen has positions in BHP Billiton Limited and Woodside Petroleum Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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