The Santos (ASX:STO) share price is up 3% on positive sentiment

The Santos Ltd (ASX: STO) share price has enjoyed steady growth over the past week due to a range of positive internal and external factors.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

sdf

In the 5 days since the market opened on Tuesday of last week, the Santos Ltd (ASX: STO) share price has risen by 3.6%. This at a time when the oil and gas sectors are under siege due to persistent low oil prices driven by low demand, and a glut in supply. There are a few reasons for this movement in the Santos share price, some of which are due to the performance of the company, not only external factors. 

What is supporting the Santos share price?

On 15 October, Santos CEO Kevin Gallagher confirmed that the cost of the Narrabri gas project would be much cheaper than the $3 billion-plus price tag being widely quoted. This had raised doubts over the economic feasibility of the project. Particularly amid low gas prices globally, as well as the proposed Port Kembla LNG import terminal. The latter is a project proposal by Andrew Forrest. Tattarang, Forrest's private investment vehicle, will own 100% of the Port Kembla terminal and has plans to accelerate progress.

Nonetheless, Mr Gallagher told Citi's Investment Conference that the $3 billion figure was out of date.  Specifically, that cost reductions Santos has made in its drilling operations in Queensland would lower the estimate. Moreover, he promised to update the market on progress on reducing capex at an investor briefing on 1 December.

Moreover, drilling results have significantly exceeded expectations at the company's fracking project at its Tanumbirini-1 well. This is located in the Northern Territory and played a part in the Territory's recent election. In addition, it continues to rapidly progress for the 1.7 mtpa Moomba carbon capture and storage (CCS) project. Consequently, the project is on track to be ready for the final investment decision by year end.

Despite this good news, the Santos share price remains down by 35.5% in year to date trading.

External factors

There are some significant factors bringing good news to the sector. First, and unfortunately, weather forecasters are predicting a harsh winter for the Asia region. At present natural gas is selling for USD$2.96 per mmBtu, significantly higher than the price has been throughout the entire year. Although, still lower than the average USD$6 per mmBtu, at which LNG traded a year ago.

LNG demand normally improves during the winter in the northern hemisphere, but mild winters have been harsh to producers before. Nevertheless, Japanese forecasters believe the likelihood of a La Nina was 90 percent. The mild northern summer is part of why gas prices fell so hard, damaging the Santos share price in the process. 

In a recent video conference organised by the Gas Exporting Countries Forum (GECF), representatives stated:

We expect LNG demand to increase by four billion cubic metres this winter and that's led by growth in China, Japan and South Asia.

LNG supply is expected to grow by three billion cubic metres, led by the US. And when we put together demand and supply forecast, we expect the LNG market to be slightly tighter than last winter by one billion cubic meters.

Foolish takeaway

The Santos share price edged up slightly today on the back of positive sentiment. However, there appears to be a culmination of good news for the company. In particular the reduced costs for its major expansion project, and the positive results for its NT fracking project. If this were to combine with a harsh northern winter, there may be pressure on the Santos share price. 

Motley Fool contributor Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

Frustrated stock trader screaming while looking at mobile phone, symbolising a falling share price.
Broker Notes

Guess which ASX 300 stock was downgraded to sell today

Bell Potter has become bearish on this stock. But why?

Read more »

Ten happy friends leaping in the air outdoors.
Share Gainers

Here are the top 10 ASX 200 shares today

The ASX gave up an afternoon lead to close lower today.

Read more »

a gas worker with hard hat and high visibility vest stands cross armed and smiling in front of an elaborate steel structured gas plant.
Share Market News

Morgans names 2 ASX energy shares to buy now

These shares could be top picks for investors with a high tolerance for risk.

Read more »

Young businesswoman sitting in kitchen and working on laptop.
Broker Notes

Is the ResMed share price still cheap? What the numbers say

Let's see what analysts are saying about this blue chip as it nears a 52-week high.

Read more »

A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.
Broker Notes

What does Macquarie think REA shares are worth?

Top broker Macquarie has reviewed its rating and price target on REA shares.

Read more »

Three guys in shirts and ties give the thumbs down.
Share Fallers

Why Aurelia Metals, Centuria Office, Meeka Metals, and Resolute shares are tumbling today

These shares are having a tough time on Thursday. Let's find out why.

Read more »

a young woman raises her hands in joyful celebration as she sits at her computer in a home environment.
Share Gainers

Why Clarity Pharmaceuticals, Kelsian, Life360, and Syrah shares are rising today

These shares are pushing higher on Thursday. But why?

Read more »

Woman checking out new TVs.
Broker Notes

Does JP Morgan think JB Hi-Fi shares can keep rising?

The retailer is up 16% for the year to date.

Read more »