Amidst national net zero commitments, the federal government recently released offshore petroleum exploration permits to mine for petroleum at sea.
AUSIEX’s head of product and trading, Brett Grant, is worried that the government’s “divergent approach” is symptomatic of a dilemma facing investors in the energy market — which way to play the energy crisis.
Mr Grant noted that geopolitical tensions and post-COVID-19 economic recovery has created “windfall profits” in the oil and gas sector “that could never have been generated by increased operational efficiency”.
He forecast that these drastic increases in energy prices will likely stay high for some time, and will be sure to boost profits for Woodside Energy Group (ASX:WDS) and Santos (ASX:STO).
While these may be attractive prospects for investors, Mr Grant offered: “On the other hand, as concerns about climate change drive the world toward a lower-carbon future, there are legitimate doubts about the future demand for oil and gas.”
“A growing number of investors simply want to avoid the sector altogether to focus on companies helping in the transition to a net zero carbon economy,” he explained.
“One superannuation fund, NGS Super, recently sold its entire holdings in Woodside and Santos for this very reason and expects other super funds will need to do the same to fulfil publicly stated emissions reduction goals.”
With two sides to the coin that can flip either way — soaring energy prices that could soon fall to ESG factors — Mr Grant provided that there is no one way for investors to play out this “energy transition”.
“Especially given that there are no programs and timetables yet from governments here and overseas on how they expect to manage this transition.”
“The nature of the dilemma, the promise of strong returns for income and momentum investors concerned by the risks of shorter-term volatility and the uncertainty around the longer-term energy transition, means that a smarter and transitional approach to energy investing may be needed,” Mr Grant concluded.
To find out what this “transitional” approach is, read on here.
