Hydrogen

Fossil fuels vs renewables: What’s ahead for ASX energy shares?

If you were running an effective, multi-billion business and someone asked what your strategies were to wind it down, what would you state?

This isn’& rsquo; t a rhetorical question.

In truth, it is the essence of the demand Market Forces, an ecological activist investor group, is making to some of Australia’& rsquo; s most significant energy shares. As the Australian Financial Review (AFR) reports, Market Forces is asking “& ldquo; ASX-listed fossil fuel business to prepare for their own demise in order to align with Paris climate objectives”&

rdquo;. Their very first target is the $14 billion ASX oil and gas giant, Santos Ltd (ASX: STO), part of the S&P/ ASX 200 Index (ASX: XJO).

Santos’ & rsquo; management, as you might expect, suggested they had no plans to shutter operations, responding:

Santos does not mean to shut down its oil and gas operations, as doing so would protest the interests of investors and would not follow international environment and human advancement objectives, especially lowering air pollution and hardship.

According to Santos, 80% of the world’& rsquo; s primary energy needs are still derived from oil and gas. A figure that’& rsquo; s unchanged since 1975. Rather than removing its fossil fuel production, the company is dealing with lowering emissions by means of novel technologies in carbon capture and storage. Santos is also associated with developing hydrogen energy sources with no carbon footprint.

Other ASX energy shares in Market Forces’ & rsquo; crosshairs this year are Woodside Petroleum Limited (ASX: WPL) with a market cap of $24 billion; Oil Search Ltd (ASX: OSH) with a market cap of $8.5 billion; Whitehaven Coal Ltd (ASX: WHC) with a market cap of $1.6 billion; and New Hope Corporation Limited (ASX: NHC) with a market cap of just over $1 billion.

Market Forces is working under the assumption that Australia, and the rest of the world, can quickly transition far from nonrenewable fuel sources, changing the energy sources with renewables.

But how close is Australia really to turning off all the gas in favour of solar and wind?

Has the demise of gas been considerably exaggerated?

Consultancy firm Wood Mackenzie approximates that Australia will need 10 times more gas to produce power than what the Australian Energy Market Operator (AEMO) has forecast.

According to the AFR, WoodMac forecasts that gas will still supply some 10% of Australia’& rsquo; s power in 2030, as opposed to AEMO’& rsquo; s 1% price quote.

WoodMac senior expert Rishab Shrestha said:

You need a well balanced portfolio to avoid extreme price spikes. We need to handle the speed of this shift, and maybe the shift plan that has been set out does not necessarily record all the threats that are associated with that.

The ongoing disputes might use headwinds or tailwinds to the share prices of the most significant ASX energy business, depending on the outcome.

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