Oil and Gas Investing in Australia

Oil and gas in Australia: Sector performance in recent years

2020 was a historically bad year for the oil and gas sector, with the pandemic causing a drastic decrease in consumption. In turn, this drop in global demand caused prices for oil and gas to plummet.

However, in 2021 and 2022, the industry experienced a much-needed rebound, with the Dow Jones US Oil and Gas Index (INDEXDJX:DJUSEN) rising by 23.49 percent in the last year.

According to a US Energy Information Administration report, global oil consumption was higher than the rate of supply for every quarter of 2021 and much of 2022. This contributed to rising crude oil prices across the world.

Oil and gas in Australia: Future outlook for the industry

The oil and gas extraction industry grew well over the last year; in fact, the industry has continued to develop consistently over the last decade, despite the setback caused by the COVID-19 pandemic. Looking from a purely historical standpoint, this suggests future growth will follow a similar trend, but there are many more factors to consider.

As recovery from COVID-19 and the impact of the Russia-Ukraine war continues, the oil and gas industry is predicted to keep stabilising in 2023 and 2024.

It should also be noted, however, that many oil and gas firms reduced their capital expenditure and held off on new investment projects during the pandemic. Because production capacity development stagnated, experts are calling for slower growth in the sector over the next five years.

According to the International Energy Agency, petrochemicals will lead demand growth. This includes LPG and LNG; Australia is a significant producer of these, and is on track to be a top producer of LNG specifically.

While oil prices shot up in 2021 and 2022, it’s difficult to predict if this trend will continue. There are many uncertainties that play a role in the price of crude oil. However, overall liquid fuel consumption is expected to grow over the next few years, surpassing pre-pandemic levels, and oil and gas will is expected to continue to be a critical part of the world’s energy supply in 2023 and beyond.

Australia’s oil and gas sector has had significant growth over the last decade, with US$310 billion invested. As mentioned earlier, the country is also on track to become the world’s largest exporter of LNG.

Even though the pandemic temporarily delayed much development, there are many investments and expansions in the works. Additionally, as demand for LNG continues to grow in Asia, many of the key players in Australia’s oil and gas sector have made long-term supply agreements.

Oil and gas in Australia: What to consider before investing

It's important for investors interested in oil and gas in Australia to have an understanding of the global market, but there are also factors specific to the country to keep in mind. Here are a few:

• Key players — Before jumping into Australia's oil and gas market, it's important to know which companies are the key players. The companies with the largest market share are: Woodside Energy Group (ASX:WDS), BHP (ASX:BHP,NYSE:BHP,LSE:BHP), Santos (ASX:STO), Chevron Australia, Woodside Petroleum (ASX:WPL), Shell Energy Holdings Australia and ExxonMobil Australia.

• COVID-19 implications — The Omicron variant didn’t cause the drop in oil prices in 2022 many investors initially feared, and China’s relaxing of pandemic restrictions has increased the forecast for oil demand growth. It’s unknown how and if COVID-19 will continue to affect oil prices in the future.

• Large hydrocarbon resource — Australia has a significant resource base for hydrocarbons. This means it has a large capacity for producing crude oil, natural gas and natural liquid gas. Because of this, Australia is considered a great prospective destination for global oil and gas investment companies.

• LNG demand growth — Demand for gas energy, mainly led by major Asian countries like China and India, is a good sign for Australia’s gas sector. Thanks to the country’s geographical advantage and production capacity, it has become one of the key players in global LNG output. As demand for this form of energy grows, so will Australia’s oil and gas sector.

Oil and gas in Australia: Ways to enter the market

Australia’s oil and gas sector has continued to grow over the years, and demand for its exports is seen rising. For those interested in investing in Australian oil and gas, there are two main ways to do it.

The first is to invest directly in Australian oil and gas companies. Some of the largest players are mentioned above, and a more complete list can be found by clicking here.

Exchange-traded funds (ETFs) focused on oil and gas are also a popular option. ETFs that are exposed to Australian oil and gas include the VanEck Vectors Australian Resources ETF (ASX:MVR), the SPDR S&P/ASX 200 Resource Fund (ASX:OZR) and the BetaShares Australian Resources Sector ETF (ASX:QRE).