S&P/ASX 200 Index (ASX: XJO) energy shares are in the spotlight as European nations face major gas shortages amid Russia's ongoing war in Ukraine.
The looming gas crunch has been on investor radars since Russian forces began to mass on their neighbour's border back in January. But things are coming to a head as fears grow Russia may forgo its lucrative gas revenues and shut off its gas exports to Europe.
Russia is among the world's top oil producers, trailing only the United States and Saudi Arabia.
When it comes to liquified natural gas (LNG) exports, however, Australia leads the global charge.
Which begs the question, can leading ASX 200 energy shares like Santos Ltd (ASX: STO) and Woodside Energy Group Ltd (ASX: WDS) help fill the energy void as Europe weans itself – whether voluntarily or involuntarily – off Russian gas?
We'll get back to that possibility in a tick.
First, here's the latest call to arms from the executive director of the International Energy Agency (IEA), Fatih Birol.
First true global energy crisis in history
Soaring gas prices may be good news for the profit margins of ASX 200 energy shares. But they also may be a harbinger of difficult times ahead for many people across the globe.
In a report released on Monday, Birol said, "After many months of warning signs, Russia's latest moves to squeeze natural gas flows are a red alert for the EU."
According to Birol:
The world is experiencing the first truly global energy crisis in history. And as the International Energy Agency has been warning for many months, the situation is especially perilous in Europe, which is at the epicentre of the energy market turmoil. I'm particularly concerned about the months ahead.
The gas crisis in Europe has been building for a while, and Russia's role in it has been clear from the beginning…
After Russia invaded Ukraine on 24 February, nobody in Europe or elsewhere could be under any illusions about the risks around Russian energy supplies.
Shortly after Russia's military invaded Ukraine, the IEA released a 10-point plan for the EU to cut its reliance on Russian gas.
The report "stressed the need to maximise gas supplies from other sources; accelerate the deployment of solar and wind; make the most of existing low emissions energy sources, such as renewables and nuclear; ramp up energy efficiency measures in homes and businesses; and take steps to save energy by turning down the thermostat".
With the IEA emphasising the need for Europe to source gas supplies from sources outside of Russia, could this bolster ASX 200 energy shares?
ASX 200 energy shares eyeing the longer game
ASX 200 energy shares like Santos and Woodside aren't immediately in a position to replace Russian gas exports into the EU, with most of their mid-term supplies already locked into existing sales contracts.
Ramping up LNG production also isn't something that can be accomplished overnight.
But that doesn't rule out a bigger role for ASX 200 energy shares in European markets inside the next few years.
In a report released in March, just weeks after the Russian invasion, EnergyQuest said (courtesy of The Australian Financial Review):
With the European crisis, the demand for Australian LNG is likely now to be even greater, which is an opportunity to win more contracts for current new projects. Woodside should be able to contract more of Scarborough and Santos more of Barossa.
The second priority would be to keep existing plants full, particularly the North West Shelf in the face of its looming decline.
ASX 200 energy shares are certainly interested in taking a slice of the European gas market out of Russian hands.
In late March, Santos strategic adviser external affairs Tracey Winters said (quoted by The West Australian), "The really important lesson out of Russia's interference in western democracies is that we need to reduce not increase the west's reliance on Russian oil and gas supplies."
Citing the IEA's 10-point plan she pointed out that, "Number two on that list is increasing supply from other sources."
"There's a lot of evidence that Russia has sought to maximise the west's reliance on oil and gas from Russia, which in the case of Europe is a massive problem," Winters said. "Natural gas will continue to play an important role in serving the energy needs of Australia and the world for at least the next two decades."
Earlier this month, deputy head of equities at Perpetual Vince Pezzullo cited the EU gas crisis as one of the reasons Perpetual thinks ASX 200 energy share Santos is "a compelling opportunity".
According to Pezzullo:
Europe is also looking to diversify its sources of gas to decrease their heavy reliance on Russia. One of the ways it is looking to do this is through increasing LNG imports and Santos is a key global producer through its stake in the PNG LNG, Gladstone LNG, and Darwin LNG assets.
