Could Japan's 'flexible measures' on LNG emissions boost the Santos share price?

Axing the Santos led offshore Barossa project would come as a blow to investors, who've enjoyed an 8% boost in the Santos share price so far in 2023.

| More on:
A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price

Image source: Getty Images

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

The Santos Ltd (ASX: STO) share price would likely take a material hit if the $5.8 billion Barossa gas project gets the axe.

Some environmentalists might cheer that outcome.

But, atop diminishing global gas supplies, it would come as a blow to investors, who've enjoyed a 7.5% boost in the Santos share price so far in 2023. And that's not factoring in the record-high 22.4 cents final dividend, paid out on 29 March.

Created with Highcharts 11.4.3Santos PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.com.au

The S&P/ASX 200 Index (ASX: XJO) oil and gas stock, along with its Japanese and Korean joint venture partners JERA and SK Group, made the final investment decision (FID) for Barossa back in March 2021.

And the project, which is located in the Timor Sea, was given the thumbs up by the National Offshore Petroleum and Safety Environmental Management Authority (NOPSEMA).

But in a potential blow to the Santos share price, Barossa's development could be at risk from the Labor government's stringent carbon emissions reduction plans, unveiled at the end of March.

That's a risk that the Japanese government is less than pleased with.

What is Japan asking the Australian government to do?

The Japanese government is concerned not so much for the Santos share price, but for Japan's own energy security as Labor's new safeguard mechanism rules begin to bite.

As The Australian Financial Review reports, Japan has asked the Albanese government for an "immediate and sincere" reply to questions it submitted about the safeguard mechanism three weeks ago.

Despite moving the goalposts on the Santos-led Barossa project in mid-game, Energy and Climate Change Minister Chris Bowen noted:

The government engaged extensively in developing the policy and has worked closely with key trading partners including Japan to ensure the scheme design is well understood.

But the Japanese government still has significant concerns over Labor's new policies, including the fact that the stricter emissions regulations are retroactive.

According to a spokesman for Japan's Ministry of Economy, Trade and Industry (METI):

We have been indicating our concerns about the impact of Australia's safeguard mechanism reform to the Australian government as Minister [Yasutoshi] Nishimura said on June 16… As the Australian government has the political authority, we are waiting for their response.

METI's spokesman said he's been in discussions with Bowen and has "requested flexible measures" when it comes to the emissions from the Santos-led Barossa project, and LNG projects more broadly.

That kind of flexibility would likely offer some healthy tailwinds for the Santos share price.

The spokesman noted that Japan's Prime Minister Fumio Kishida "also made a similar request to Prime Minister Albanese".

The METI spokesman added (quoted by the AFR):

We will continue making the utmost efforts for environmental measures, but will also continue consultations with the Australian government regarding measures for protecting Japanese investors and ensuring a stable supply of LNG, in order to find a mutually acceptable solution.

Santos hopes to restart drilling at the Barossa project within the next six months.

Santos share price snapshot

Excluding dividends, the Santos share price is up 2% over the past 12 months.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Energy Shares

a group of three electricity workers stand smiling wearing hard hats and high visibility vests in front of an array of high voltage power equipment.
Energy Shares

Macquarie raises price target on Origin Energy shares

The broker just raised it's price target. Here's why.

Read more »

A smiling woman holds a Facebook like sign above her head.
Energy Shares

Bell Potter says this ASX 200 uranium stock is a top buy

Let's find out why the broker is feeling bullish on this stock.

Read more »

Worker on a laptop at an oil and gas pipeline.
Energy Shares

Boss Energy shares have surged 93% since April. Here's what Macquarie expects now

Boss Energy shares remain a favourite for ASX short sellers. Are they in a for a payday or headed for…

Read more »

A young man wearing glasses writes down his stock picks in his living room.
Energy Shares

3 reasons to buy this beaten down ASX 200 coal stock today

A leading expert forecasts a big potential rebound ahead for this quality ASX 200 coal stock.

Read more »

Female miner uses mobile phone at mine site
Energy Shares

Here are the latest growth forecasts for the Pilbara Minerals share price

Can investors charge up their returns with this ASX lithium share?

Read more »

An oil worker in front of a pumpjack using a tablet.
Energy Shares

Top 5 ASX 200 energy shares of FY25 amid a challenging year for sector

The energy sector was the weakest of the 11 market sectors in FY25.

Read more »

An oil worker on a tablet with an oil rig in the background.
Energy Shares

Buying Woodside shares? Here's the latest oil price forecast from Goldman Sachs

Here’s what Goldman Sachs is forecasting for the oil price in the year ahead.

Read more »

Natural gas plant engineer using a laptop.
Energy Shares

Santos share price pushes higher amid big Asian news

ASX investors are bidding up Santos shares on Friday.

Read more »