Australia an energy target as Iran-Israeli war triggers global turmoil
'In the worst-case scenario in which the Strait of Hormuz is closed, it will affect both global LNG and oil markets by up to 20 per cent of their respective annual consumption,' Citi energy analysts said this week.
'Global LNG markets will be more vulnerable than oil to further escalation of Middle East tensions.'
These Middle East petro states may be underpinned by oil sales, but LNG gives them much-needed diversification.
And LNG assets far away from the region give them pricing and supply upside from any energy price spikes triggered by these conflicts and any related supply shocks.
Santos could not be more tempting from a strategic point of view.
It would give XRG a business far from the drama of the Middle East thanks to its assets in Australia, Papua New Guinea and Alaska and close to Santos' coveted Asian customers, which have a fast-growing appetite for LNG.
And what would the Santos suitors make of Australia's comical industry, where operators get a lot of their gas royalty-free from Australians and then make a fortune selling it back to them as global prices surge?
Santos is not the only local energy giant making a splash among the oil giants.
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Woodside Petroleum boss Meg O'Neill was part of the Trump entourage on his recent trip through the Middle East. She signed up Saudi Aramco, the world's largest oil and gas producer, as a partner for Woodside's US projects.
She was almost the only female in a group photo with Trump and Saudi Crown Prince Mohammed bin Salman. She was quoted in the official White House press release.
'Woodside and Aramco will explore global opportunities, including Aramco's potential acquisition of an equity interest in an LNG offtake from the Louisiana LNG project as well as exploring opportunities for a potential collaboration in lower-carbon ammonia,' she said.
'Lower-carbon' is the other major reason why these petro states are now pouring more money into LNG developments than oil.
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Even the petro states realise LNG will have a longer shelf life than oil as the alleged 'transition fuel' to a green energy future.
China's total crude oil consumption dropped last year and developing nations are expected to follow as they adopt the flood of cheap EVs China is churning out.
But the future of the Santos bid is as uncertain as the outcome of the Israel/Iran conflict.
The XRG consortium is conducting due diligence, and as both sides are cautioning, there is no certainty that a formal offer will emerge.
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More importantly, there are many regulatory hurdles, including government approval if a concrete offer does emerge for what is a critical piece of Australian infrastructure.
The issue of domestic gas reservation, to prevent taxpayers and local businesses from getting screwed by companies supplying Australia its own gas, will be an interesting part of any takeover negotiations, especially since Santos already supplies gas domestically.
The fact that Santos is trading at something close to a $5 billion discount to the $30 billion cash being offered for its shares tells you plenty about how cautious the market is about the potential success of this deal.
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