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Santos and Woodside see a solution to energy shock

According to the AFR publication, the two resources giants believe the Ukraine war will create a power security crisis that will reverberate for decades. And they have the solution.

Santos chief executive Kevin Gallagher and Woodside boss Meg O’Neill are careful to say all the right things about the spikes in oil and gas prices caused by the war in Ukraine.

Speaking at The Australian Financial Review Business Summit in March 2022, Gallagher repeated his view that he’s never comfortable when oil prices get so high that demand destruction is a threat, while O’Neill expressed her support for the people of Ukraine.

But neither energy veteran is about to waste a crisis they say has confirmed the importance of oil to the global economy, raised fresh questions about energy security around the world, and emphasised the need to carefully manage the energy transition over decades.

So, having spent the last few years defending themselves against a rising tide of environmental concerns amid an accelerating energy transition, the crisis in Ukraine is allowing them to make the case for the long-term expansion of oil and gas supply with a new sense of confidence.

“I think this is a change that’s going to be with us for decades, honestly,” O’Neill said of the commodity shock ripping through global markets.

“When we talk to customers, they want affordable energy, they want lower carbon energy, but first and foremost, they want reliable energy. And I think this is going to cause the world to think really hard about energy security, and where we buy energy from.”

Countries like Australia and the United States, she argued, would be in the box seat to help provide energy security to like-minded allies no longer keen to rely on regimes such as those in Russia and the Middle East.

Gallagher issued a similar warning, saying that with oil and gas still part of the energy mix out to 2050 – under even the most aggressive energy transition scenarios – supply provides the only solution to the current crisis.

And even that’s no sure thing.

“I just don’t see how the supply side can fill the gap in any sort of meaningful timeframe to address these high prices,” he said.

The Summit has been notable for the change in rhetoric from a range of business leaders around energy policy.

The zeal for decarbonisation hasn’t necessarily waned, but the Ukraine conflict has brought a recognition that an energy transition needs to be just that – a well-managed shift that considers energy reliability and affordability alongside environmental needs.

Gallagher says turning off fossil fuel supply “is not going to speed up the transition”, and would smash an industry such as manufacturing where energy is a key input.

“That wouldn’t be so much of a transition but a demolition of that sector. There’s got to be multiple decades to transition.”

High prices always lead to a supply response, so the question is whether the fallout from the war in Ukraine speeds up the energy transition (by incentivising renewable energy), or slows it down (by justifying investment in oil and gas that seemed unlikely six months ago)?

Gallagher was careful not to overplay his has hand, arguing investment in new production will need to be accompanied by investment in decarbonisation.

He says it is only because of Santos’ controversial carbon capture storage project at Moomba, in South Australia, where it will inject carbon into depleted gas reservoirs, that new oil and gas projects can be considered.

And he backed O’Neill’s view that it is gas, not oil, which will be the focus of Australia’s energy giant, due to the commodity’s role as a transition fuel.


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