• EC proposes European ban on Russian oil exports
  • Crude oil prices climb on the news
  • Australia is expected to feel the pinch before too long

Well, that happened. I guess we should talk about it.

The European Union has – as long anticipated – up and proposed a ban on all Russian oil exports. No word yet on a ban on gas, but that’s still a bridge too far as this point.

It hasn’t quite happened yet, but the proposal brought up by the European Commission seeks to ban all shipping, brokerage, insurance and financing servers related to the import and transport of Russian oil within a month’s time.

That’s thorough, even for the EU.

Rather predictably, this sent the price of the benchmark Brent crude soaring more than 4% to US$110.64 per barrel and there are concerns that it won’t stop there.

You see Russian oil production has been in the decline and with Big Oil’s exit and sanctions of Russian banks, developing new resources in hard to reach places like Siberia will be difficult to say the least.

This could lead to a permanent reduction in crude oil production from one of the world’s largest producers, which would mean that unless something major changes, we are faced with prospect of further tightening of supply.

We’re in for a world of pain too

So where does this place Australia?

First off, it is highly unlikely that oil prices will fall below the US$100/bbl mark anytime soon.

Even if Russia were to make the sadly implausible decision to withdraw from Ukraine and some of the sanctions imposed on it were rolled back, the turmoil that it has already caused would take years to fix.

One potential scenario in the event this occurs is the market reacting bullishly, which will increase oil demand just when supply is unable to keep up.

Second, the halving of the Federal Government’s fuel excise from 44c to 22c runs out in about four months plus change.

Crude oil prices are very unlikely to have come down in that time, which is going to hit an Australian public that is already struggling with the cost of living harder again.

Whichever side of politics wins government is going to be facing a difficult decision to keep the cut in place or end it once the six months are up.

High oil prices will also drag up the pricing of other fossil fuels, though this impact might be somewhat less in Australia given its status as an exporter of both coal and gas.

But we will experience the indirect impact. Higher energy prices elsewhere in the world will increase the prices of products such as cars, computers and anything else produced anywhere but here.

So who benefits from the ban on Russian oil?

There is one category of Australians who will benefit from this state of affairs and that’s our resident oil (and gas) companies.

Woodside (ASX:WPL) might well be one of the big recipients of this boon post its merger with BHP’s petroleum arm.

As pointed out by Stockhead’s Josh Chiat, both BHP Petroleum’s rich Gulf of Mexico assets and Woodside’s new Sangomar development in Senegal that is expected to start production in 2023 will spit out wads of cash, especially if oil prices stay at or above the US$100 level.

Closer to home, Santos (ASX:STO) and Carnarvon Energy (ASX:CVN) have been steadily defining the Bedout Sub-basin as Australia’s next offshore oil province.

Their most recent success, the Pavo discovery, has just been estimated to host contingent resources of about 43 million barrels of light oil, which is comparatively easy to refine, distil and transport.

With further appraisal having the potential to prove up a further 55MMbbl, the new discovery is rapidly shaping up to be a significant new resource that could be produced through the planned Dorado development, which itself holds more than 150MMbbl of oil.

The duo are currently drilling the Apus-1 well that targets the same reservoirs that have proven successful at Dorado and Pavo.

While the joint venture has no need for a success here – Apus is considerably riskier than Pavo with a pre-drill 23% geological probability of success compared to 34% – the two companies (or their future customers) certainly won’t say no to more oil.

Meanwhile, junior oil and gas play Red Sky Energy (ASX:ROG) has estimated that its Killanoola project could have contingent resources of up to 27.9 million barrels of oil, a staggering 896% increase over previous estimates.

This is hugely encouraging for the company as it continues to plan for a full development of the field.

On the gas front, Talon Energy (ASX:TPD) and Strike Energy (ASX:STX) have flowed gas at a rate of 75 million standard cubic feet per day from their Walyering-5 well during testing, the third highest in the Perth Basin.

Besides being an excellent result and strong indicator that the duo can contribute to Western Australia’s domestic gas supply, the flow serves to further cement the Perth Basin’s growing position as an onshore gas province.