GOT GAS: Wild and woolly energy postulations for 2022

Given the disruptions in the energy sector since the onset of the COVID-19 pandemic back at the end of 2019, the next 12 months will certainly prove to be an “interesting” ride for all investors.

So just what might we see in 2022? Here’s a little peek into the crystal ball for some completely unsubstantiated predictions of what we might just see, and because it’s the first article of the year, we’ll take a broader look than just our regular focus on all things gas.

And all that gas…

As we said multiple times in the past — and contrary to the wishes of the green lobby — natural gas isn’t going away anytime soon.

In 2021, longterm underinvestment in exploration and production resulted in gas shortages in Europe and Asia sending prices soaring to record highs – recent warmer weather leading to some replenishment of stockpiles notwithstanding.

While there have been some new projects approved in recent times – like Scarborough and Barossa in Australia – lead times before they enter production and natural decline of existing fields means that we are nowhere out of the woods yet.

As a consumer, the gas story will depend largely on where you live.

If you’re on the west coast of Australia, 2022 is likely to be little different from the last couple of years thanks in large part to Western Australia’s domestic gas retention policy.

Things get a little more exciting for explorers. The spate of successes in the onshore Perth Basin means that rigs are going to be really busy this year as companies look to thoroughly prove up its potential.

Over east, things are a little tougher.

Many existing fields are ageing and declining while many of the coal seam gas fields are locked up as feedstock for the giant LNG projects in Gladstone, Queensland.

That, along with an active spot gas market, means that we are likely to see another big spike in prices as the weather gets colder. Our guess? Prices are likely to set new records.

Upstream is probably just as exciting as it is over in the west, with numerous new plays such as the Beetaloo sub-basin in the crosshairs of both majors and juniors.

There’s just one problem — most, if not all of them are shale or coal seam gas formations, meaning that unlike the conventional gas reservoirs in the Perth Basin, developing these plays will require fracture stimulation, which adds costs and draws the ire of environmentalists.

Hydrogen floating high

The other gas that has captured our attention — hydrogen — is likely to keep making waves this year.

The darling of the clean energy pundits (like Andrew Forrest) green hydrogen is likely to see more companies jump on the bandwagon while production costs are likely to keep falling thanks to new technology or just simple scale reducing the cost of production.

Blue hydrogen is also likely to see new developments given that majors are pushing ahead with their respective plans – such as such as Woodside’s (ASX:WPL) strange hybrid hydrogen and ammonia plant in Kwinana that will see a third of its hydrogen produced using electrolysis and the other two thirds from methane reforming.

More broadly, expect to see more infrastructure announcements.

While the hydrogen sector has been dominated by arguments about what the best way to produce the gas is, it will all come to nought if there isn’t the infrastructure to bring said hydrogen to the consumer.

Hydrogen could also see increasing consideration as a way to store excess energy generated through the use of renewable energy during production peaks for use when there’s little or no power being generated.

Entrenched demand keeps oil afloat

Oil keeps the world moving and will continue to do so in 2022 and for years to come.

A large part of this is due to entrenched demand.

There are millions of cars on the roads, and even with the most aggressive rollout of electric vehicles, ICE are still going to make up the majority of vehicles on the road for some time to come.

The same is true for planes and ships.

While it is true that research is underway into clean energy – particularly hydrogen – this work is still some way from seeing even limited commercial use.

However, questions are already being asked about whether supplies of crude oil would be sufficient to meet demand given years of underinvestment as viable oil fields become harder to find or more expensive to produce from.

Should the Omicron variant prove to be just a stumble as most seem to believe and demand return to pre-pandemic levels, we can reasonably expect investment and activity to really ramp up in the US shale oil sector.

Sun, wind and batteries forging the future?

Expect renewable energy to continue making gains at the expense of coal in most developed countries.

We can reasonably expect solar to continue leading the charge as the price of photovoltaic panels continues to fall while wind power will continue to be adopted in locations with the right conditions.

But the most excitement is likely to come from the energy storage sector because lets face it, the biggest impediment to greater take-up of renewable energy is its inability (generally) to provide baseload energy.

As such, expect to see a push for more energy storage – whether it be rechargeable batteries, hydrogen, pumped hydro or more esoteric methods such as molten salt – to capture the excess energy generated by renewable energy sources for use when generation is curtailed during the night or periods of insufficient wind.

Despite the Australian government’s gas-fired recovery plan that favours the gas sector, it is pretty much a foregone conclusion that renewable energy will continue to make up a larger part of the our energy mix.

This will likely be true even without the grid-scale projects that are due to come on line in the near future due to greater uptake of solar power and just maybe more batteries amongst homeowners.

Nuclear power fulfilling its destiny?

Is 2022 the year that nuclear power returns to the forefront? Our Magic 8-Ball says that the outlook is good.

First off is the European Commission recent proposal that nuclear power be listed under its “taxonomy of environmentally sustainable economic activities” – a move that is certain to provoke environmentalists though possibly not as much as natural gas being lumped together in the same proposal.

This is likely driven by the subcontinent’s desire to achieve net zero emissions by 2050, a goal that some believe can only be made possible by using nuclear energy.

Should this be codified, it is entirely likely that we will see more nuclear power projects be proposed in Europe, an attractive prospect to those wary of relying on gas supplies from Russia.

Even without this proposal supplies of uranium are widely expected to get tighter, a prospect that has been further strengthened by unrest in Kazakhstan, prompting a bit of a buying frenzy for physical uranium.

This comes as China is poised to see a big uptick in nuclear power generation capacity from 49 gigawatts in 2019 to 69Gw this year, which coupled with other new nuclear power developments and demand from existing projects means that uranium is likely to be hot property.

Coal is dying, but watch the death throes

Sure, coal companies have been making bank in the last year or so, but that’s due to the sudden resurgence of demand and the recent energy crisis in the Northern Hemisphere.

While prices are expected to stay elevated in the short-term – possibly all through 2022 -thanks to strong demand from both China and India, the move away from coal is inevitable with the world’s move towards net zero emissions.

Developed countries are already shifting away from coal with the UN calling for the fossil fuel to be phased out by 2030 in Organisation for Economic Co-operation and Development countries.