Long lines for fuel, fights breaking out and the army being placed on standby. The situation in the UK is a symptom of the energy crisis that continues to build momentum.

The crisis has been building up for some time now from several factors that have combined into a perfect storm that is likely to stick with us for some time to come.

European natural gas stockpiles are at their lowest level in a decade thanks to an unusually long winter that extended through April.

This coincides with rising demand as economies in the northern hemisphere recover from the COVID-19 pandemic, raising concerns about gas shortages and power blackouts in winter.

Gas production has also been dwindling with underinvestment meaning that new sources of gas are unlikely to emerge in the near-term, while gas piped from Russia is not expected to make up the shortfall.

These factors, along with competition with Asia for limited gas supplies, has sent gas prices soaring to record levels, a fact that liquefied natural gas suppliers have grasped with glee.

This has led to increased used of diesel and petrol as utilities run more oil (and coal)-fired electricity generation, a situation that sent crude prices on an upward trajectory. Especially as it was coupled with the ongoing reduction in US Gulf of Mexico production due to the impact of Hurricane Ida, and declining production from other major sources.

Oil prices jumped to a three-year high with the benchmark Brent crude within spitting distance of the US$80 per barrel mark while the West Texas Intermediate has broken past the US$75/bbl barrier.
 

Further increases likely

Along with a faster recovery in oil demand in the broader market, it is no wonder than that Goldman Sachs has raised its end-2021 oil price forecast from US$80/bbl to US$90/bbl.

“While we have long held a bullish oil view, the current global supply-demand deficit is larger than we expected, with the recovery in global demand from the Delta impact even faster than our above-consensus forecast and with global supply remaining short of our below consensus forecasts,” Reuters quoted Goldman analysts as saying.

Its previous forecast was based on demand recover and weaker supply response from non-OPEC oil producers with a seemingly prescient warning that a colder winter and soaring natural gas prices could lead to higher-than-expected oil prices at the end of this year.

Goldman Sachs adds that OPEC output increases have been offset by the Hurricane Ida-induced reductions in GoM production while supply growth from producers outside OPEC have been below expectations.

Energy analyst Peter Strachan also questioned OPEC’s ability to lift its production though he noted that Iran could add about 1 million barrels of oil per day if sanctions were lifted.

He told Stockhead that oil demand would be crimped and economic growth threatened if crude prices exceeded US$85/bbl.

US oil producer Hess Corporation also warned that the industry was “massively underinvesting” in supply even as demand continued to rise.

Wood Mackenize noted earlier this year that global upstream investment had fallen from US$600bn before the pandemic to a 15-year low of US$350bn in 2020.

“There’s little evidence yet of upstream investment perking up from a 15-year low, even in the price-sensitive US Lower 48 tight oil plays. The mood will change if prices remain at these higher levels well into 2022 and show signs of sustained recovery,” WoodMac had noted in June.

“So that tells me the industry is massively underinvesting to meet future supply,” Hess Corp’s president Hill told Reuters.

Strachan added that even with US LNG cargoes, gas pricing in the northern hemisphere is likely to remain strong.

“Australian LNG producers will be making out like bandits, selling all the cargoes they can at spot, even all the way into Europe or as swaps with US cargoes,” he noted.

“At A$109/bbl, oil is also very profitable, so cash flows and dividends into 2022 should remain high for oil producers such as Oil Search (ASX:OSH), Santos (ASX:STO) and Woodside (ASX:WPL).”
 

Demand curbs could limit energy crisis

There may be some – admittedly limited – signs that not everything is going the way of demand bulls, with China reportedly imposing restrictions on industrial activity in an attempt to meet energy intensity targets and reduce emissions.

Bell Potter Securities noted that besides reports of electricity supply rationing, some provincial governments have reportedly asked office workers, shopping malls and residents to limit power consumption in a bid to prevent blackouts.

Prolonged restrictions in Asia could also impact on the pace of recovery across oil markets with WoodMac lowering its third quarter Asia Pacific demand outlook by 220,000bpd and fourth quarter outlook by 300,000bpd.

It added while demand could improve next year, the prospect of quarantine-free travel for vaccinated travellers to countries such as China, Japan, Australia and India looked low, which could impact on jet fuel demand.
 

ASX Oil and Gas Companies

Swipe or scroll to reveal the full table. Click headings to sort.

Code Company Price %Mth %SixMth %Wk %Yr MktCap
GGE Grand Gulf Energy 0.034 183 183 21 278 $ 15,798,732.77
NWE Norwest Energy NL 0.026 160 333 24 550 $ 125,995,203.61
GGX Gas2Grid Limited 0.004 100 14 33 129 $ 14,161,357.27
GLV Global Oil & Gas 0.027 59 -7 13 50 $ 23,778,964.30
DOR Doriemus PLC 0.27 42 542 6 747 $ 32,471,217.09
PVE Po Valley Energy Ltd 0.033 38 17 27 10 $ 34,225,876.93
FAR FAR Ltd 0.8 36 57 5 57 $ 79,333,441.14
COI Comet Ridge Limited 0.13 34 91 31 40 $ 107,504,305.63
TMK Tamaska Oil Gas Ltd 0.012 33 33 33 50 $ 11,280,000.00
IPB IPB Petroleum Ltd 0.02 33 -39 0 -23 $ 6,737,097.36
KAR Karoon Energy Ltd 1.57 31 48 15 112 $ 853,754,446.16
OEX Oilex Ltd 0.0045 29 80 0 125 $ 22,753,721.42
TPD Talon Energy Ltd 0.0115 28 44 15 229 $ 67,886,934.78
BPT Beach Energy Limited 1.355 27 -24 30 -1 $ 2,817,447,065.16
ATS Australis Oil & Gas 0.051 24 -4 16 104 $ 56,938,791.50
SXY Senex Energy Limited 3.68 21 31 8 39 $ 655,048,085.28
CVN Carnarvon Petroleum 0.3 20 13 15 46 $ 438,306,376.76
CE1 Calima Energy 0.215 19 8 2 79 $ 102,740,735.00
STO Santos Ltd 7.11 19 -1 16 39 $ 14,039,865,116.34
VEN Vintage Energy 0.077 18 15 17 26 $ 44,187,326.83
WPL Woodside Petroleum 23.96 18 -2 16 31 $ 22,185,176,178.88
OSH Oil Search Ltd 4.375 18 4 18 57 $ 8,539,966,229.04
KEY KEY Petroleum 0.0035 17 -13 17 -42 $ 6,887,748.44
ADX ADX Energy Ltd 0.007 17 -36 -13 40 $ 17,279,063.90
EXR Elixir Energy Ltd 0.2525 15 -28 10 94 $ 213,843,210.24
KKO Kinetiko Energy Ltd 0.099 14 -29 -1 30 $ 60,431,769.09
BYE Byron Energy Ltd 0.135 13 -4 4 -21 $ 135,238,363.26
EEG Empire Energy Ltd 0.33 12 -8 5 6 $ 197,826,532.53
COE Cooper Energy Ltd 0.25 11 -9 11 -29 $ 375,136,004.15
OEL Otto Energy Limited 0.01 11 11 5 11 $ 45,552,592.84
JPR Jupiter Energy 0.04 11 -13 0 -9 $ 6,135,107.72
TEG Triangle Energy Ltd 0.021 11 -34 5 -46 $ 22,581,487.66
BRU Buru Energy 0.16 10 3 7 100 $ 86,150,878.56
HZN Horizon Oil Limited 0.088 9 42 11 109 $ 137,368,037.69
PRM Prominence Energy 0.013 8 -7 8 63 $ 10,885,692.20
MEL Metgasco Ltd 0.026 8 4 4 38 $ 19,055,004.64
ICN Icon Energy Limited 0.014 8 -18 8 -30 $ 8,366,497.13
NZO New Zealand Oil&Gas 0.43 8 2 0 -43 $ 70,705,208.74
IVZ Invictus Energy Ltd 0.155 7 7 0 163 $ 87,761,608.05
ROG Red Sky Energy. 0.0095 6 138 6 280 $ 52,822,271.97
STX Strike Energy Ltd 0.285 6 -11 -3 10 $ 566,536,254.48
CTP Central Petroleum 0.105 5 -16 -5 -9 $ 76,029,834.41
TDO 3D Oil Limited 0.052 4 -15 8 -20 $ 12,463,853.48
CUE CUE Energy Resource 0.064 2 -3 3 -64 $ 43,981,542.36
MAY Melbana Energy Ltd 0.022 0 1 16 71 $ 53,465,801.80
SGC Sacgasco Ltd 0.039 0 -51 0 -9 $ 17,772,899.35
XST Xstate Resources 0.004 0 -69 0 33 $ 12,860,726.60
AXP AXP Energy Ltd 0.007 0 133 0 75 $ 32,749,587.64
WEL Winchester Energy 0.016 0 -27 0 -50 $ 15,095,497.46
ABL Abilene Oil & Gas 0.001 0 0 0 0 $ 397,614.35
E2E Eon Nrg Ltd 0.001 0 0 0 0 $ 769,888.93
HPR High Peak Royalties 0.052 0 -5 0 -17 $ 9,825,732.75
LKO Lakes Blue Energy 0.0015 0 0 0 0 $ 53,282,113.44
NSE New Standard Energy 0.004 0 0 0 0 $ 3,554,995.46
PSA Petsec Energy 0.021 0 0 0 0 $ 10,260,346.40
TNP Triple Energy Ltd 0.025 0 0 0 -14 $ 1,799,901.35
LIO Lion Energy Limited 0.042 0 45 0 68 $ 12,792,070.24
HHR Hartshead Resources 0.023 0 5 -4 -36 $ 42,544,758.90
BUY Bounty Oil & Gas NL 0.0155 -3 -23 -3 -26 $ 17,542,415.71
PGY Pilot Energy Ltd 0.055 -4 -33 6 28 $ 29,092,019.90
SAN Sagalio Energy Ltd 0.018 -5 -45 0 -10 $ 3,683,882.34
WGO Warrego Energy Ltd 0.2075 -6 -8 4 -14 $ 250,740,076.83
88E 88 Energy Ltd 0.031 -6 0 15 343 $ 446,412,523.88
NGY Nuenergy Gas Ltd 0.03 -9 -35 0 150 $ 44,428,664.91
BRK Brookside Energy Ltd 0.027 -10 42 4 350 $ 90,110,410.90
AJQ Armour Energy Ltd 0.0295 -11 -8 -11 40 $ 44,211,459.04
TOU Tlou Energy Ltd 0.05 -11 -21 0 39 $ 30,009,951.95
WBE Whitebark Energy 0.0035 -13 -13 -13 17 $ 15,305,939.43
GLL Galilee Energy Ltd 0.43 -17 -44 -7 -45 $ 124,009,433.52
BAS Bass Oil Ltd 0.002 -20 -33 0 33 $ 8,359,753.04
GAS State GAS Limited 0.32 -20 -44 -20 -51 $ 62,291,629.80
PCL Pancontinental Energ 0.001 -33 -50 0 0 $ 7,034,222.81

 

Australian impact

In Australia, the energy crisis and the resulting high oil prices are likely to impact Australians in the coming weeks when the price increase filters down to petrol pumps.

Domestic gas prices are currently low thanks to our relative insulation from global markets but fast declining supplies could see east coast prices climb, especially if the next winter is colder than usual.

For oil and gas plays, oil and gas producers are likely to  see immediate benefits given the high prices.

However, companies such as Carnarvon Petroleum (ASX:CVN) and 3D Oil (ASX:TDO) could also benefit from this strong demand.

Carnarvon is working with Santos to bring its Dorado oil and gas field into production.

The joint venture recently awarded the contract for the design, construction and installation of the wellhead platform that will supply liquids to a floating production, storage and offloading vessel about 2km away while re-injecting gas to enhance oil and condensate recovery.

A final investment decision is expected around mid-2022.

Meanwhile, 3D Oil and operating partner ConocoPhililips are targeting multiple trillion cubic feet of gas at the T/49P permit in the Otway Basin offshore Victoria.

A 3D seismic program is currently underway to help high-grade gas prospects for potential drilling.

Over in the West, prospects are also looking up for explorers and producers.

“The Perth Basin is now becoming linked to the global LNG market so days of sub-A$4/GJ gas in WA will be behind us as we move into 2023 and beyond,” Strachan noted.

“The North LNG producers will be sucking gas from Waitsia and then Scarborough.

Mineral Resources (ASX:MIN) and Norwest Energy’s (ASX:NWE) new gas discovery is likely to go into a new mini-LNG plant that trucks product to remote locations.”

Highlighting this, Beach Energy (ASX:BPT) signed a heads of agreement earlier this week with BP Singapore for the supply of all of Beach’s expected 3.75 million tonnes of LNG production from the second stage of the Waitsia gas project from the second half of 2023.

Pricing is linked to both Brent and Japan Korea Marker price with full upside exposure and a downside price protection mechanism.

Other companies that have done well for themselves in the past month or so include Grand Gulf Energy (ASX:GGE), which has oil production from its operations in Louisiana, and Global Oil & Gas (ASX:GLV), which acquired a 25% interest in the Sasonof prospect in Western Australia that targets multi-TCF of gas.

Meanwhile, Doriemus (ASX:DOR) has a small stake in Horse Hill Developments that recently completed a well intervention on the Horse Hill-1 well to optimise oil production.