Rush for oil and gas accelerates as prices soar
A promising gas find reignited interest in Buru Energy (ASX:BRU) earlier this week – delivering a 30% rise in the share price in the latest example of investors returning to the politically incorrect oil and gas sector , a move that iron ore billionaire Gina Rinehart successfully made late last year.
Although miles apart in size, the common thread between Buru (a minnow valued at $97 million) and Rinehart (with his $40 billion personal fortune), is the high demand for gas, a fuel seen as a halfway house on the road to a renewable energy future.
A growing gas shortage in eastern Australia, along with rising prices, is what lured Rinehart into partnering with Korean steel giant Posco in a $900m joint takeover. dollars from Senex Energy.
The deal came at a time when oil was selling for $73 a barrel and showed signs of firming as global demand recovered from a two-year downturn caused by COVID.
Since then, the war in Ukraine and sanctions against Russia have boosted oil, which is now selling at around US$114 a barrel, down from a high of US$127 a barrel in early March, which was a high 14 years old.
There could be even higher prices ahead as the global oil and gas shortage worsens with leading investment bank Goldman Sachs predicting an oil price of US$175/barrel towards the end of the year and other analysts tipping a record US oil price. $200/bbl.
What will happen if the price of oil continues to rise?
If these incredibly higher future price predictions are correct, a number of developments can be expected, including:
- a resumption of oil and gas exploration and project development as mothballed projects are dusted off;
- demanding destruction as industry and households struggle to pay fuel bills;
- a surge in electric car sales even as automakers struggle to keep pace with demand; and
- higher prices for battery family of metals such as lithium, nickel, copper and cobalt.
Over time, as State Street Global Advisers’ Bruce Apted pointed out earlier this week, the oil and gas rally will fade as it has always done in the past, with demand destruction colliding heads the first to an increase in production.
The challenge for investors is to determine how long the current upward movement in prices can last and, although it is impossible to prove, it is likely that the government’s discouragement of oil exploration and production and of gas could drive prices higher as some producers catch up, while others direct capital into long-term renewable energy potential like wind and solar.
Buru’s share price rise follows the latest testing of its Rafael gas discovery in the desert country south of Derby in Western Australia, an area the small company almost had for itself after an exit from the majors oil companies due to poor exploration results.
Discovery of high quality gas
Buru’s latest report indicated that the gas encountered was of high quality (low carbon dioxide content), with indications that the gas column was larger than originally mapped.
Whether it’s the discovery that puts Buru on the radar screen of the biggest oil and gas companies remains to be seen, but it’s the kind of discovery at a highly-rated onshore site that will grab attention despite decades of failures. past.
Other junior oil and gas companies are also starting to see renewed interest, including Vintage Energy (ASX:VEN) which rose from $0.08 to $0.11 (up 37.5%) during the course of trading. from last month as it prepares to launch the Cervantes-1 onshore well in Perth’s North Basin on trend from the producing oilfields of Cliff Head, Jingemia and Hovea.
Otto Energy (ASX: OEL), which is exploring in the southern US state of Louisiana, Cue Energy (ASX: CUE), Norwest Energy (ASX: NWE), Carnarvon Energy (ASX: CVN) and Central Petroleum ( ASX: CTP) are also attracting increased interest as the price of oil continues to rise.
The environmentalist’s nightmare
What is happening in oil and gas is an environmentalist’s nightmare because it was hoped that the world might be weaned from its fossil fuel habit in an attempt to limit global warming.
The war in Ukraine, along with threats to stop buying Russian oil and gas, has upended a plan laid out at last year’s COP26 climate change conference in Glasgow to limit future oil exploration and some gas. Even US President Joe Biden has changed his mind – calling for an increase in oil production.
Junior oil and gas companies have reacted modestly to changes in the oil market with the biggest gainers leading the sector, led by Woodside Petroleum (ASX:WPL), which is up 41% to $32.15 since the start of the month. the year, Santos (ASX:STO), which rose 18% to $7.81, and Beach Energy (ASX:BPT), which rose 23% to $1.61.
The rest of the year could see prices continue to rise sharply, especially if an alarming forecast from the International Energy Agency is confirmed.
According to the IEA, the Paris-based Western energy think tank, the world is heading for the biggest oil and gas supply crisis in decades.
Global supply shock
The agency says what has happened so far in energy markets is just a warm-up for what is to come, as sanctions against Russia are not yet fully in effect, but they will bite from next month when Russian supply could fall by 3 million barrels a year. day – 3% of world production.
“A global oil supply shock is now plausible,” the IEA said, triggering lasting changes in energy markets, including a faster transition away from oil.
The IEA’s proposed plan to mitigate the damage caused by sky-high oil and gas prices includes a number of sweeping suggestions, some of which last surfaced during the oil shocks of the 1970s when oil producers Middle East have banned exports.
Top of the IEA’s list are a global reduction of 10 kilometers per hour in speed limits on motorways, a three-day work-from-home regime, car-free Sundays in cities, greater use of trains and restrictions on air travel by business people.
The problem for energy consumers (and that means everyone) is that they cannot escape the daily use of oil in one form or another, while the price for investors is to ensure that they have exposure to oil as it increases, even if it means holding your nose, while trading material that does more harm than good.
Welcome to the 1970s when the price of oil rose 10x in two years from US$4/bbl to US$40/bbl – which could be exactly what will happen this year if oil hits 200 US$/bbl – 10 times more than in the United States. $20/bbl at this time, two years ago.
History may not repeat itself, but it often rhymes, as Mark Twain so aptly put it.