Santos, Woodside Petroleum, Origin Energy CEOs warn ‘off the charts’ energy prices to stay high
‘Off the charts’ energy prices are expected to remain for some time, energy bosses say, as a ban on Russian oil and scramble for supplies roils commodity markets.
The nation’s top oil and gas executives have warned “off the charts” energy prices are set to remain high, given the inability of producers to quickly bring on new production, with sanctions and restrictions on Russia sparking a global hunt among buyers to secure supplies.
Santos chief executive Kevin Gallagher says soaring oil prices could remain high for some time amid the war in Ukraine and the decision by the US and Britain to ban Russian crude supplies.
Brent oil jumped to $US139 ($190) a barrel, a 14-year high, this week while spot LNG prices jumped to the equivalent of $US500 a barrel – described as “off the charts” by Woodside Petroleum – as Russian volumes face being sidelined.
“This feels to me like unless there’s another massive slowdown as a consequence of a massive recession or another pandemic we could be stuck with very high prices, unhealthily high prices for some time,” Mr Gallagher told a Sydney conference on Wednesday.
Russia has declared that a Western ban on importing its crude supplies could more than double prices to $US300 a barrel and Mr Gallagher said there was no immediate supply response that producers in Australia could offer to the market.
“Projects are taking twice as long to get up and get approved. So it feels different this time in terms of the supply side’s ability to respond. And my feeling here is that I don’t like when oil prices go too high, it concerns me, because you get supply and demand destruction,” Mr Gallagher said.
“You get the inflationary effects of that which affect us all at the end of the day. But unless there’s a change in government policies globally, particularly if we go down the route of sanctions on Russian oil, I just don’t see how the supply side can fill the gap in a meaningful timeframe to address these high prices.”
Woodside said a spike in Asian LNG spot prices to the “off the charts” equivalent of $US500 a barrel, four times higher than oil, had sparked global concerns over energy security.
Sanctions and restrictions on Russia, the world’s fourth-largest LNG producer and supplier of 40 per cent of Europe’s gas, have created a race to find alternate volumes among buyers.
“We’ve seen gas prices that have spiked at levels that are even more unprecedented than the oil prices,” Woodside CEO Meg O’Neill told the conference.
“So the Asian price marker hit $US82 per million British thermal units. And I know that’s not a unit people understand but an oil equivalent is $US500 a barrel – absolutely off the charts.”
Big energy producers have been cautioning that a push by activists and some investors away from fossil fuels needed to be a staged transition, and Ms O’Neill said the rollercoaster in prices for raw material would force a re-evaluation of energy security.
“The one thing that the crisis in Ukraine will really cause the world to think very soberly about is the importance of energy security,” Ms O’Neill said.
“And so when we talk to customers, they want affordable energy, they want lower-carbon energy, but first and foremost they want reliable energy.
“It’s just like when you go home, you hit a switch and you expect the light to turn on, and our customers, who are largely in Asia, have that same expectation.
“Russia is going to cause the world to think really hard about energy security.”
Origin Energy has cautioned on “volatile” and “extraordinary” energy markets amid turmoil in global commodities following the Ukraine war and a ban on Russian oil by the US and Britain.
“We are in extraordinary times in the context characterised by coming out of a pandemic, the emerging conflict in Europe and incredibly volatile commodity prices,” Origin CEO Frank Calabria told investors as part of a strategy session. “And what we’re seeing is we’re not immune to that and we’re seeing that play out in the markets today. We’ve also got the prospect of rising inflation.
“From an energy supply perspective, I think you’re all witnessing the fact that we’re in volatile times with markets in transition, and therefore having a diverse portfolio of supply and having proven risk management expertise is incredibly valuable. It’ll be valuable through a period of volatility that we’re witnessing today.”
Oil has risen beyond $US130 a barrel, while prices for nickel and lithium, key components for batteries, have also soared in a move likely to lift the price of putting a big battery in at Eraring.
“The one reality check I would have now though is I think everyone has been watching lithium and everything in inflation over the last several days, so I would not be certain about that pricing today,” Mr Calabria said.
“Obviously, we’ve got a market that’s moving with higher energy prices, and that relationship is playing out. But it’d be fair to say we’re also watching unprecedented volatility in the underlying commodities here. And so any investment decision would need to be assessed against that. Because it’d be fair to say when you look at those input costs, I’m not sure that that’s the cost you could get today for a battery.”
Origin owns a 27.5 per cent stake in the Australia Pacific LNG project in Queensland and runs Australia’s biggest coal plant, NSW’s Eraring, which it plans to close in mid-2025, seven years earlier than previously planned. It will install a new 700MW battery at the same site with a 460MW facility targeted in the first stage subject to a final investment decision by the end of the year.
“Clearly, the market is going through transition. I don’t need to tell everyone just where energy prices today are,” Mr Calabria said.
Origin shares rose 1.4 per cent to $5.86, while Santos dipped 1 per cent to $7.78 and Woodside rose 0.7 per cent to $33.20.
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