For years, sentiment towards oil and gas exploration and development grew increasingly negative as the world started its great pivot towards cleaner energy amidst growing realisation that climate change was very real.

However, the prolonged global energy crisis – brought about by a combination of a faster than expected recovery from the COVID pandemic, years of underinvestment in fossil fuels and the Russian invasion of Ukraine – has reversed this seemingly inexorable march.

While the general view of oil and gas is still likely to be broadly negative, there is growing recognition that it still makes up a major part of the world’s energy mix and will remain so for some time to come – especially when it comes to addressing the energy crisis and preventing it from repeating.

This is particularly true in Europe, which has been the hardest hit thanks to Russian gas supplies from the Nord Stream pipeline to Germany being gradually throttled down before it was cut-off completely early this month.

Speaking to Stockhead, ADX Energy (ASX:ADX) executive chairman Ian Tchacos said the crisis has meant that some big industries are facing the prospect of having to shut their operations.

“What we saw is Austria spending US$3bn actually buying gas, which hit an average price equivalent to US$500 per barrel of oil equivalent in August, and storing it to try and get through winter,” he noted.

Tchacos pointed out that while the sector had been very efficient at replacing reserves, the energy transition agenda had meant that not a lot of exploration was carried out.

“If you look at Europe, Norway was probably the only country in Europe that actually backed exploration and has continued to be an oil and gas exporter,” he added.

“Their government basically funds 70% of exploration dollars. So it’s been very motivated to keep exploring while everyone else in Europe had gotten fat and happy on Russian gas and failed to concern themselves with energy security.”

Tchachos also believes that an increasing reliance on LNG will now solve the crisis, noting that LNG markets are already tightening worldwide.

In the longer term, he expects the energy situation in Europe to remain challenging.

“If you look at the five years futures curve, we are looking the equivalent of about US$30 per thousand cubic feet of gas – about 10 times the US gas price, which is itself already up three times more,” he added.

UK reliance on LNG backfires

Matters aren’t much better in the UK with Hartshead Resources (ASX:HHR) chief executive officer Chris Lewis saying its gas market was dependent on LNG imports.

“LNG is sort of the marginal molecule of supply and the shortage of LNG cargoes had a direct impact on gas markets in the UK,” he noted.

“I think that started to focus people’s minds on how import dependent we are and how global markets are going to drive gas prices in the UK and in Europe.”

Like the rest of Europe, he believes this has brought supply security to the forefront and made securing indigenous gas more important especially since the UK chose to retire its gas storage facilities in the mistaken belief that it could get LNG cargoes from wherever it wanted, whenever it wanted.

Oil and gas regulatory regimes relaxing

This has led to a structural shift in how governments perceive energy supply, leading to a move towards fast-tracking developments which were previously stalled.

“18 months ago in Germany and in Italy where they couldn’t get the approvals and now the governments are scrambling to try and get the approvals and get sanction and get developments on stream,” Lewis noted.

“So we see in a complete 180 in terms of getting new developments online and I think that’s going to continue.

“We need indigenous supplies of energy and that that that includes gas, includes nuclear, the Germans are even firing up their coal-fired power stations again.

“I think there’s going to be a lot more joined up thinking in terms of energy systems and energy security.”

In the UK, this shift was most recently highlighted by the government lifting its moratorium on hydraulic fracturing (fracture simulation in Australia), which has been in place since 2019 – a move welcomed by AJ Lucas (ASX:ASX) whose subsidiary Cuadrilla Resources’ shale gas operations have been curtailed until now.

And it’s not just governments.

Lewis believes that the investment community has also changed its opinion towards fossil fuels.

“Just 12 months ago, a lot of European investors were moving away from fossil fuels. I think that’s changing now.”

Green energy transition still important

That is not to say that the move towards net zero should be halted.

“I don’t think anyone debates that we need to look at the energy transition and the need to displace, you know, some of the more carbon heavy and polluting forms of energy,” Lewis noted.

“But we can’t do that tomorrow. If you look at the UK, more than half the gas demand in the UK goes to domestic consumers for their heating and their cooking.

“How do you replace that entire system? How do you go to more than 50% of their houses in the UK and replace their gas boilers and gas cookers?

“It’s a long term project and during that transition we need security of supply because, otherwise we’re going to have these price shocks.”

Tchachos also pointed out that while Europe has been pushing renewables for over 30 years, it still represents about 25% of the energy mix.

“And what do you do when the sun doesn’t shine and the wind doesn’t blow? Then you need some sort of energy storage, and right now it’s gas,” he added.

However, Tchacos believes that in the long-run, hydrogen will be the primary source of grid-scale energy storage as batteries are too expensive and take up too much space.

This continued transition is best highlighted by the European Union Parliament moving to support the European Commission’s target of 45% renewables in the region’s energy mix by 2030.

Watch our video discussing a range of topics including trends and shifts in the current energy field, oil and gas sector sentiment amidst the Russian invasion and the industry’s response.


At Stockhead we tell it like it is. While ADX Energy and Hartshead Resources are Stockhead advertisers, they did not sponsor this article.