Two Of Australia’s Biggest Energy Firms Are Thinking About Joining Forces

Two Of Australia’s Biggest Energy Firms Are Thinking About Joining Forces
Theodora Lee Joseph, CFA

3 months ago2 mins

What’s going on here?

Woodside Energy and Santos, two of Australia’s biggest oil and gas companies, started talks that could see them celebrating a $52 billion merger.

What does this mean?

Woodside and Santos aren’t small fry by any means. In fact, together they control most of Australia’s natural gas industry. But the sector’s only getting more competitive, plus the cost of taking on new projects is creeping higher. So by joining forces, the duo could combine their cash, spread out their risk, and work on troubleshooting their less successful projects. But they won’t be taking over the world anytime soon: Woodside and Santos combined would still be selling roughly three times less liquified natural gas than big shots like Shell.

Woodside and Santos stock falls

Why should I care?

For markets: Yoga isn’t the only way to stay flexible.

Russia’s war in Ukraine shuttered essential gas pipelines and forced Europe to compete with Asia for new suppliers. That sounds sweet for gas providers, but with so many potential markets at their hands, firms need a champion statistician to decide which cargo to send where to bring in the highest possible profit. Or failing that, they can merge with other companies to widen their portfolios, letting them move their supplies around without ditching customers.

Woodside and Santos production

Zooming out: The benefits of group mentality.

Mergers are run of the mill in the energy sector. US titan ExxonMobil recently spent $64 billion on Pioneer, for example, and Chevron bought Hess for roughly $60 billion a couple of months ago. See, while tight supply has buoyed natural gas prices this year, expected floods of gas from Qatar and North America should limit the energy’s profit margins from 2025. What’s more, the International Energy Agency thinks overall demand for coal, oil, and natural gas will peak before the end of the decade. No wonder firms are finding safety in numbers: it helps to be a big fish in a small pond, especially when the pond’s shrinking.

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